Tough Business: A Real History of the First Agricultural Stock in the Growth Enterprise Market

2010-08-05

Why should Gifore be the first agricultural company in the growth enterprise market? What does the rural business really mean? Which one is more important, business model or method? What kind of talents will stick for the wealth opportunity in the large-scale agriculture age ? koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

From Shuangliu Airport, drive to the northeast about 19 kilometers , and you’ll arrive in Chengdu, the most prosperous and modern city in West China. Too much has already been said about it.    koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Still from Shuangliu Airport, drive to the northwest about 37 kilometers, and you’ll arrive at Pi County, which is an unimpressive county located on city fringes. The only impression we have on it may be about its well-famous flavor, bean sauce, usually used in the Sichuan cuisinekoO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Wang Mingxin, 44 years old, and his Gifore Agricultural Machinery Chain Co., Ltd. (SZ.300022) are rooted here. Before 2007, he was just an unknown entrepreneur. Few people paid attention to the circulation industry related to agricultural machinery. He was nobody even though the industry was not popular. In October 2009, Gifore Agricultural became one of the first 28 companies listed in the growth enterprise market. After that, its share price hiked up, and it was rewarded as “the next Suning Appliance” and “the first strange stock in the growth enterprise market”. It is the company which has the largest number of natural person shareholders (85 directly holding shares in its prospectus ) . So, it has created a group of multimillionaires, and even billionaires.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In rural areas a promising future is hided.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Sichuan is a major agriculture province in China, where the first round of the agriculture reform “Land Contract with Individual” was set afoot thirty years ago. Liu Yonghao and his brothers, the first-generation entrepreneurs, started their business here by raising quail and selling feed. Some time later, their businesses were gradually diversified.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Some years later, urbanization, industrialization and informatization created groups of tycoons in real estate, manufacturing and retailing as well as IT upstarts. However, only rural businesses are fading. Why is that?koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Because the first rural reform only emancipated the productive force but not improved it. For the next 30 years later, agriculture subsidized industry, and rural areas subsidized urban areas, which made the contradiction between city and countryside irreconcilable.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

What developed countries experienced shows that agricultural modernization is based on agricultural mechanization. If we want the former, we must make the latter come true. There will be no agricultural modernization without rural mechanization.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Does rapid rise of Gifore Agricultural uncover an all-round beginning of China’s agricultural modernization?koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

However, why did it have to be Gifore Agricultural? Southwest China where it started its business suffered the poorest agricultural mechanization and the biggest difficulties. In the agricultural machinery industry with the average margin of only 4%, Gifore Agricultural has only a market share of 0.72%.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Wang Xinming may be the key factor. He was born in the countryside, graduated from the agricultural machinery school, and had worked in the agricultural machinery system for a long time. All above experiences he had helped him to understand farmers well. He understood the nature of rural business better and earlier than this peers, and committed to such sector until the whole industry got better. It is not easy to conduct integration especially when you are weaker. Wang Xinming moved a group of talents from villages in Southwest China with his ideas, and used the management rules to draw them together. He learned and mastered the advanced business concepts from other industries so that Gifore Agricultural run in most front of the whole agricultural machinery industry.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Early in July, three people from Entrepreneur paid a visit to Gifore Agricultural. After investigation by more than 20 people, we are aware that rural business is not only involved in planting, cultivation and processing. Production and consumption related to agricultural modernization and urbanization are dawning. So, what unique features dose the rural business have?koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

First, the rural business has a very low profit margin. All rural businesses were largely at their primary state due to lack of government supports for a long time before 2004. However, they understand the policy direction properly, have the modern business concepts, work hard and the long-term businesses are scarce. Based on this, they will show their pioneering advantages once the policy environment changes. Urban and rural combination in the future will create new business triumphs. koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Second, the urban business model can not be directly applied to rural areas, where the way of  adapting them to local conditions is far more important than the standard business models. Wang Xinming and his colleagues have fumbled an unique “way” of doing business in rural areas, that is, they use the incremental market created by government subsidies to build sales network as quickly as they can, and then use economies of scale formed by such networks to incorporate stocks at low cost. Finally, they will build their own brand based on their services rather than prices. However, we are not sure such way with local characteristics whether fits the whole country. koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Third, it is obvious that such business is so grass-root knowledge-intensive and grass-root hard working-intensive that there are many barriers to entering such kind of industries. No talents want to stay in rural areas, and accordingly it is hardly to do business there. However, Wang Xinming gets talents together with stock equities at first, uses advanced concepts to train them, and then sends them to all over the country to expand the market. Only when experienced grass-root people from rural areas continue to have access to market and are proactively combined with rural capital and intelligence resources, the rural business will see a big future.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

    1. Make A ChoicekoO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

If you are an entrepreneur and face two industries, one is a hot industry where it is easy for you to earn several millions yuan each year due to its existing resources and channels but hard to make your business bigger and listed, the other is a traditional industry for which you used to study hard and work hard but still went down and where everything goes wrong for you. You have no choice but to make your mind to reconstruct the industry landscape. So, how should you push it forward? koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

It is the situation that Wang Xinming was in in 1998.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

He remembered that the circulation industry for agricultural machinery used to be a place of ease and comfort. Before the opening and reform, the whole country paid high attention to the agricultural machinery industry due to the completely planned economic system. At that time, The First Machinery Department, the State Council, was in direct charge of agricultural mechanization, and in most provinces the vice-governor also acted as the head of the Agricultural Machinery Department. “At that time, the tractor drivers in the villages were very easy to find a wife”, Wang Xinming said, joking. He graduated from Sichuan Agricultural Machinery College in 1985, and then worked as the deputy director of the Bureau of Agricultural Machinery and the head of the Provincial Station for Agricultural Machinery Technology Promotion.  koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

But the rural land reform was a turning point for development of agricultural mechanization. As the household-rent-land policy was carried out, the farmland was divided by household. In Sichuan province with limited land and larger population, each person could only rent a land of about 426.7m2. Such production mode resulted in arrested development of the agricultural machinery industry in Southwest China. As a saying went at that time, “Implementation of the household-rent-land policy closes all ways to develop the agricultural machinery.”koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Take Sichuan for example, in twenty years from 1982 to 2002, the population of large tractors decreased half each decade, down from 20,000 units to less than 6,000 units. Small agricultural machinery saw a slow development. Wang Xinming said, “Sichuan only saw an annual average increase of 2% to 3% each year.” koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Although the institutions related to the agricultural machinery circulation sector were reformed into the state-owned enterprises in 1980’s, but they survived well under the planned economic system. At that time, the national, provincial, city and county-level state-owned agricultural machinery enterprises were set up. The up-one-level sold the agricultural machinery to the one-level-down by bulk as planned, with the price raised by the stated amount which would be as the profit.    koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In 1995, the local state-owned enterprises faced a dilemma. Only in Sichuan and Chongqing area, more than 80% of such enterprises were forced to go bankrupt, change their production line or just stop doing business. Only less than 20% survived by transformation. The original stated-owned agricultural machinery circulation crashed.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “The government walked away. The system collapsed. In order to make a living, general manager, vice general manager and even department head and section chief used their own connections or relationship with upstream manufacturers to set up companies to sell agricultural machinery”, said Gao Yonghua, former senior executive of one agricultural machinery company in Chengdu. He founded a small company, as his old fellows did, to sell generator units. At that time, the whole industry was in the situation where the original system collapsed and the whole industry was  disarrayed in the out-of-competition.  koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Disappearance of agricultural machinery colleges also proved that the industry was at rock bottom. Sources of agricultural personnel were cut off. There used to be 10 agricultural machinery colleges in Sichuan, but all of them disappeared early this century. Sichuan Agricultural Machinery College was renamed as Sichuan Vocational Technical Institute, with the agricultural machinery major canceled.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In 1994, Wang Xinming co-founded Sichuan Gifore Agricultural Engineering Co., Ltd. (hereinafter referred to as “Gifore Agricultural Engineering” ), the former of Gifore Agricultural, with Sichuan Agricultural Machinery Association as its strong stockholder. The Association was under guidance, supervision and management of Bureau of Agricultural Machinery of Sichuan and Department of Civil Affairs.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Gifore Agricultural Engineering was just a small company manufacturing a small accelerating germination implement. “After Deng Xiaoping’ south China tour, it was very popular that many organizations started to do substantial business. Strictly speaking, Gifore Agricultural Engineering was collectively owned at that moment.”, Wang Xinming stated. Actually, he was not engaged in operation and management due to reasons, .    koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

It was in 1994 that he not only worked in the Bureau of Agricultural Machinery but also helped his wife, Wang Hongyan, to set up a pharmaceutical distribution company in Chengdu. He said, “The pharmaceutical company helped me with the primitive capital accumulation. The company developed very well in 1998. For making money, it really did a great job. ” koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

During this period, Gifore Agricultural Engineering visited him several times to ask him to take over it, but he refused. Until 1998, China started to sort out the enterprises founded by government authorities. At that moment, Gifore Agricultural Engineering was at stake.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In fact, Wang Xinming encountered some confusion. “Connections and resources are necessary for pharmaceutical circulation. If we didn’t use underhand means, we couldn’t move forward any more. I couldn’t rank top 3 in 5 years in Chengdu, not even Sichuan. ”koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Gang WU, chairman of Jiuding Capital, “Wang Xinming likes his business not because it can make money for him, but because he wants to be a leader. ”koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Besides, he had got a lot of feelings on the agricultural machinery industry which pulled him back. “I believed that the winter for the industry would end some day, though I didn’t know when the spring would come. What is more important for me is that the industry is unstained.”  koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Wang Xinming conducted a 3-month survey in rural areas, Sichuan, before he made his decision. He found that private distributors were easy to go bankrupt due to small size and unstable operation. At that moment, there were so many “homeless agricultural machinery” without maintenance and repair in rural areas that farmers felt very disappointed about the agricultural machinery distributors. He thought, “ The industry has many disadvantage. Conversely, it also contains opportunities. ” koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

So, he discussed with his wife, Ms. Wang Hongyan, which he wanted to go back to the agricultural machinery industry and take over Gifore Agricultural Engineering which couldn’t generate any profit for him at that moment. Both of them worked independently and performed their respective dutieskoO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

With a view of avoiding institutional conflicts, Wang Minxing, in the name of Jikang Agricultural Machinery under his control, acquired the shares held by social organizations and renamed it Gifore Agricultural. However, Gifore Agricultural was just a distributor without the word of “Chain”.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “After I took it over, I made a new start and focused on selling agricultural machinery. We therefore said that it was in 1998 that Gifore Agricultural startekoO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In the early days of the company, Wang Xinming set a target that Gifore Agricultural should rank top 3 within three years in Sichuan. At that moment, there were 6 state-owned agricultural machinery companies. Among them, China Agricultural Machinery Southwest Co., Ltd. was the largest one, with the annual sales volume of nearly 400 million yuan.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “Looking back, from 1980’s to 2004, our government gave farmers subsidies for buying farm machinery. China’s agricultural machinery industry was really in winter in that two decades years.” Wang Xinming said.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

    2. Stay alivekoO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “The industrial profits is clear, with the margin profit of 3-4%. It is tough for everyone engaged in this industry. We are very confused. Many people have left. One who stays really love the industry with emotions and ideals. However, the future is not clear for them.” Wang Xinming said.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Recently, Wang Xinming was on a business trip back from Jiamusi, Heilongjiang, where he saw what he did before. “150 agricultural machinery sales companies crowned in the street occupying an area of about 4 square kilometers. Among them, 50 owners used to be heads or executives of state-owned agricultural machinery companies. All those companies were small and in a price war. That is typical in China.” signed Wang Xinming. Gifore Agricultural has grown up in such situation. koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

At the early stage, Gifore Agricultural was located in Bairen Village on city fringes, with 8 employees. It built a three-story building, the first floor used as employees’ quarter and storehouse and the second floor as offices. Its doors and windows were made by Wang Xinming’s father. The building was in poor condition and leaked when it rained. Electricity was not stable. There was a air-conditioner in Wang Xinming’s office. He never opened it because the power supply for computers would be interrupted once he did. Around the company there were small stores collecting scraps. There was a smelly ditch where mosquitoes would be everywhere in summer. Near the building was an unsurfaced road so that no one would go to work in white shirt with their leather shoes polished. Every day, Wang Xinming rode his bike from Chengdu to the company.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

At that time, the main products produced by Gifore Agricultural were Anhui Changjian cultivators which were applicable to small farmlands in hilly and mountain areas. Even in the 2009 annual report, cultivators had a share of 32% in the sales volume. In addition, Gifore Agricultural was the general agent of Kubota, a world-known harvester brand. In fact, it could only sell 2 harvesters all over the year.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Wang Xinming considered to sell farm-oriented trucks as agricultural machinery couldn’t make money for him. Sichuan used to be the second largest farm-oriented truck production base in China. At its peak, there were more 40 manufacturers. When he worked in the provincial agricultural machinery bureau, he used to establish good relationships with some enterprises due to business reasons. Wang Xinming said, “I could buy trucks on credit. That is, I did business with few costs.”Gifore Agricultural started to set up local offices to sell trucks. At the end of 1999, it founded its first branch in Nanchong. Next year, it established another two branches respectively in Neijiang and Bazhong to sell Chuanlu and Neijiang trucks. koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Around 2000, 6 state-owned companies mentioned above went bankrupt one by another. “In 2001, all of sudden, I was No. 1 in Sichuan. All those large companies disappeared from the market. ” In fact, Wang Xinming failed to find a good way to make money. “We set up local offices at the early stage, and built a so-called supermarket. We tried everything but failed at last. We still lost money. We were not match of local companies due to lack of resources.” koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In 2003 when Ge ZHENG, the standing vice manager of Gifore Agricultural, joined the company, Wang Xinming had set up 8 branch offices in the second-tier cities, Sichuan. His brothers and sisters all sold vehicles. That year, the sales volume exceeded 100 million yuan. “The trucks had a share of 80%.”, Wang Xinming admitted, “at that time, we just chased sales volume, so profits was very thin, even zero.” Wang Xinming had to borrow money from his wife’s company to pay for the upstream company. “That was my darkest time. I wouldn’t make it so long if I didn’t have a clear understanding on the agricultural machinery industry. ”, he singed with emotion.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In 2003, the company was in lack of capital, and 28 natural person shareholders, including Wang Xinming and his wife, invested 1.65 million yuan. At that time, Wang Xinming completely left Jikang, and managed the company as an individual shareholder. He became the strong shareholder of the company after multiple capital operations.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “There was no regional leaders. Products were so highly homogeneous that all companies seized the market with low prices and paid no attention to services. No one had initiative to think about services.” Liu Hao left the state-owned agricultural machinery company and went into business in the mid 1990’s. It took him five years to make the sales volume from 1 million yuan to more than one 10 million yuan and to be the second in Mianyang, close to the first. There was little gap between him and Lai Kunming who closely followed him. There were still a dozen distributors in Mianyang, and more in counties and towns. koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “In the later 5 years, the sales volume was stagnant”, Liu Hao recalled. koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

At that time, distributors in Minyang acted like enemies. Their stores were so close that their relationship was on a tight rope. So far, it is widely known in the company that both of them used to be in fight. However, Liu Hao always said, smiling, “ it was just hearsay.” koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Liu Hao used to try to hire several university students who left soon. It was his big trouble that he couldn’t retain talents and could only run the store on a mom-and-pop basis. “I was very tired and almost gave it up at that time. After 10 years of development, I had completed my primitive accumulation. I couldn’t see any hope and the future was unclear if I went on.” koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Wang Xinming started to try integration and reconstruction. In 2002, Gifore Agricultural integrated a leading distributor in Ya’an by holding its shares. Li Yafeng, from Ya’an, used to be engaged in agricultural machinery promotion, and knew Wang Xinming a long time. In 2003, Gifore Agricultural, together with a tractor factory in Sichuan, integrated a distributor in Lianshan. “After two holding companies were set up respectively in Ya’an and Liangshan, we received a good return on investment in no time. Accordingly, our strategy has become clear, that is, we’ll focus on integration and reconstruction.” Wang Xinming said.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

However, if there is no incremental market, who would like to integrate the stock?koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

A Way to Do Rural BusinesskoO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

    3. Integrate the Stronger with the WeakerkoO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “Gifore Agricultural performs integration with concepts. We proposed the concept of ‘Harmony for co-survival, Help for win-wins ’ as the whole industry was looked down due to the price war. We claimed that we would never participate the price war but dig the channel values by virtue of integration with distributors so as to provide farmers with better terminal services and make them assured after purchasing.” Wang Xinming said.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

On November 1st, 2004, the Law of the People's Republic of China on Promotion of Agricultural Mechanization was enforced. In Wang Xinming’s opinion, it marked that China had turned from nurturing industry by agriculture into nurturing agriculture by industry. The central government started to provide farmers who purchased the appointed agricultural machinery with subsidies from that very year. The total amount of subsidies saw a huge increase year by year, from tens of millions yuan in 2004 to 15.5 billion yuan in 2010. The scope of agricultural machinery was broadened. Even in some places, farmers queued up to buy agricultural machinery,which hadn’t been seen in years.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Jiuding Capital had made a detailed estimation that the central government arranged 6.97 billion yuan subsidies for the purchase of agricultural machinery within 5 years from 2004 to 2008, driving farmers to spend 37.3 billion yuan and pull the sales volume in the agricultural machinery industry to 44.3 billion yuan. The investment to sales volume ratio was up to 1:5.35, that is, the central government invested 100 million yuan, which could directly create the sales volume of 635 million yuan for the agricultural machinery industry.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The year 2004 was a turning point of Gifore Agricultural. In 2004, Wang Xinming turned his focus from trucks to agricultural machinery circulation industry and started to integrate the regional leading distributors systematically. Gifore Agricultural negotiated the top 3 distributors first and then would set up the joint venture company with the candidate. Gifore Agricultural held more than 51% shares of the new company and the local distributor held less than 49%.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In fact, the first distributor Gifore Agricultural wanted to integrate did better than it. It was not easy to advise it to join in Gifore Agricultural.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In order to integrate the market in Mianyang, Wang Xinming traveled there 4 or 5 times. Besides, he asked Ge ZHENG to visit Mianyang twice or three times. In 2006, Liu Hao and Lai Kunming joined in Gifore Agricultural together. At the same year, the sales volume of Gifore Agricultural in Mianyang exceeded 30 million yuan which was higher than the sum of Liu Hao and Lai Kunming. In 2009, its sales volume was up to 200 million yuan while the top one company that refused to cooperate with Gifore Agricultural had been left far behind. Now, Liu Hao is in charge of the business of Gifore Agricultural in East China, and Lai Kunming acts as the general manager in Northwest China.   koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Liu Yonghua joined Gifore Agricultural in 2006. But since 2004, Wang Xinming made contact with him and advised him to join. “At that time, I didn’t know how Gifore Agricultural operated and felt that it had some connections with the government and could get some subsidies. Besides, he had a medical company which could earn money. The profit in the agricultural machinery industry was very thin. I was not sure whether he could carry on.” koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Until 2006, Deng Yonghua changed his mind. “In 2006, I was aware that the central government started to increase the subsidies for agricultural machinery, and the market got better. I’d like to sell the agricultural machinery with subsidies. However, a problem puzzled me. The circulation company saw an increase of 20% each year at most, and suffered a decrease if the market was bad. However, Wang Xinming who used to do promotions made the sales volume doubled at least. There must be something I didn’t know.”koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In June 2006, Deng Yonghua joined Gifore Agricultural. Now he acts as the director of the Operation Center, in charge of managing core businesses.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

He understood Wang Xinming’s intention just after joining Gifore Agricultural, that is, they use the incremental market created by government subsidies to build sales network as quickly as they can, and then use economies of scale formed by such networks to incorporate stocks at low cost. Namely, turn the industrial stock into the company’s increment.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

By the end of 2006, Gifore Agricultural had largely completed the layout in 21 cities in Sichuan. Among distributors, 90% joined in Gifore Agricultural as franchisees. 29 of 85 natural person shareholders when Gifore Agricultural was listed are distributors and have made great contributions to Gifore Agricultural.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

However, it was just a beginning of networking. Gifore Agricultural wanted to set up branch offices in all second-tier cities in Sichan and Chongqing and required all branch offices to set up their branches offices in counties and find cooperative partners in towns. Such is the “ladder-type chain network”. The network destiny is high enough to support the services.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In 2009, Gifore Agricultural had more than a half of market share in Sichuan and 70% of the agricultural machinery market with subsidies. It was the exclusive sole of the national top five agricultural machinery manufacturers. Its sales volume increased from 200 million yuan in 2006 to 1.6 billion yuan in 2009 so that its comprehensive strength ranked top 1 in China. However, its net profit was only 5.023 million yuan. It is obvious that it is not comparable with Hepalink, a a high-tech enterprise which extracts heparin from small intestine of pig.  koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

4. Chain + ServiceskoO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “We undertook internal discussions. If we were not so attached, we would be diversified. We got such opportunity. If we did, we had to diffuse our energies. Our profit is just several percentage points. We have to struggle against such temptation. And that is why Gifore Agricultural initiated its IPO. No matter how small the business you do, you’ll earn money if you get it bigger on a professional and detailed basis. ” Ge ZHENG.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In 2005, Wang Xinming studied the President Course in Tsinghua University SEM for a year. During that period, he brought a book, GOME and Suning, for all executives. After that, he put the word “chain” after “Gifore”.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

At that moment, GOME and Suning had proved the strength of the large-scale channel chains. In 2004, Suning saw more than 9 billion yuan in revenue, with a single store of more than 140 million yuan. It was praised highly by the capital market. By contract, the agricultural machinery circulation industry remained in the “Stone Age”.  koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

First, sizable distributors are engaged in wholesale business. Dealers pass on with price makeup, increasing channel cost making manufacturing far away from end users. Such business model doesn’t reveal the value of channels but pass on the commodities. “Gifore Agricultural changed its focus from wholesale to retailing, changing the core business model.” Wang Xinming was the first to extend the channels down to towns by flattening them. koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Second, Wang Xinming set about to push out supermarkets covering multiple varieties and brands. Individual distributors only depended on their own connections and just acted for one or a few brands. Such distributors crowed in one street where “the battle for price was formed”. However, the direct supermarket showcased products belonging to different categories and brands, which not only prevented happening of the price war but also lowering costs for price comparison. Besides, franchising for improving organizational degree is additional.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “Gifore Agricultural increases its comprehensively gross profit rate to 13% or above, resulting from the scale effect arising from chain.” Wang Xinming said, “the maturity of circulation is a weather vane of that of the industry. Only big circulation can match Big Manufacturing.” Even today, Gifore Agricultural’ gross profit rate sees 5 percent points lower than that of maturer urban chain enterprises, with its single-store revenue of 18 million yuan. koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In October 2007, Wang Xinming made his first speech in the industrial conference and found that many members still discussed whether the chain operation was applicable to the agricultural machinery industry. At that moment, he recognized that he got a “asymmetrical advantage”.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Wang Xinming thought that what made the agricultural circulation different from the household appliance circulation most were “services”. Considering that consumer density was higher in urban areas and household appliances were consumables, it is very economical for manufacturers to set up the maintenance points. Therefore, distributors may not provide after-sales maintenance and services.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

However, the agricultural machinery industry is quite different. First, the rural areas feature a vast territory with a sparse population. The cost will be high if manufacturers set maintenance points. According to national regulations, after-sales services related to agricultural machinery shall be provided by the sales enterprises. Second, the agricultural machinery is seasonable. Demand for after-sales services increases dramatically during the crop-planting time, resulting in high pressure for after-sales services. Third, the agricultural machinery is used to create income, the agriculture is limited to seasons, and planting, sowing or harvesting shall be finished within one month. All in all, if the agricultural machinery breaks down and can not be fixed as soon as possible, farmers will suffer huge economic losses.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Undoubtedly, the circulation system which used to be “small, scattered and out-of-order” can not meet the service requirements above. Wang Xinming has proposed a slogan, “Services Create New Values”.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “If you provide better services, you may attract 5 new clients. If you screw up, you may scare 15-20 potential clients away. ”, Liu Hao told to Entrepreneur. In Sichuan, farmers put their broken machines at the door of the County government for help as the sales company didn’t repair them in time. koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Mianzhu town, 5 kilometers away from the urban areas of Leshan, is on city fringes. Zeng Weidong, the general manager of Leshan Chain Store of Gifore Agricultural, told us that the busy season and the slack season were half and half. In order to not make his 8 service staff overwhelmed in the busy season, he always arranges them to train alliance businesses and farmers in the slack season. Each year, Gifore Agricultural will allocate special funds for training and provide free lunch priced at 20 yuan per head.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Gifore Agricultural improved its market position as the chain model focusing services received a rapid success. Two or three years ago, the large manufacturers only allowed Gifore Agricultural to affix its signature without negotiation. However, we saw the following expressions in the 2009 annual report, “The gross profit margin of tractors increases more quickly than their sales revenue does mainly because the upstream manufacturers provide higher discounts due to increase of sales volumes.”koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Who can do rural business?koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

5. Success with the help of peoplekoO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The network related to the agricultural machinery industry in Sichuan is not so wide that we know each other very well. “We are all from the former state-owned enterprises. So, you are here, we believe in you and we’ll be here.” Sun Yonghua said. Before he joined Gifore Agricultural, his many friends have been there and their channels have been integrated with Gifore Agricultural.” koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Ge ZHENG still remembered when Wang Xinming drove him to Gifore Agricultural.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

After graduated from the college, he was assigned to the agricultural machinery company in Aba prefecture for financial affairs. He found a job in a foreign trade company after the regime collpased. In 2003, Wang Xinming visited his former boss, and said that he needed an accountant. He recommended Ge ZHENG to him. At that time, his job was retained with his salary suspended.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Wang Xinming drove his new Buick to visit Ge ZHENG. During the meal, Wang Xinming told Ge ZHENG that Gifore Agricultural was a company with sales volume of more than 100 million yuan. “I thought it sounded good. ” So, I agreed to have a look at his company. koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “To be frank, I was very disappointed when I arrived there. It was not like a company with the sales volume of more than 100 million yuan. ” What he saw was the old headquarter located in Bairen Village. Ge ZHENG almost resigned as it took him two or three hours to take a bus from downtown to the suburb to work every day. “We really want to change our office location but at that moment we made no profit.” Gifore Agricultural had moved to the new headquarters by the end of 2007. Except those who retired, early-stage employees stayed in the company until it was listed. koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “At that time, his medical business could easily earn millions yuan one year. But Mr. Wang really wanted to accomplish something bigger, and so he just waited and stuck to it. Later, he quit for the agricultural machinery business. Nothing will be accomplished without any emotion.” Ge ZHENG used to hold a post of CFO. In 2005, the company still made little money. Wang Xinming forced to convert a half of bonus for executives into shares. At that time, the senior management lacked confidence on the company and many of them signed to give it up. “Now, I always say, joking, that it is me who forced dozens of multimillionaires out.”koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Wang Xinming told Entrepreneur that some among 28 natural person shareholders who invested the company with him in 2003 quit each year. Until 2008 did some natural person shareholders quit. They couldn’t endure the torture from the industry with the gross profit margin of 4%.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “You really need patience and persistence if you want to be engaged in the rural industry. ” Wang Xinming told it three times to Entrepreneur.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

What is the most important to do rural business is to find the right person.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “The agricultural machinery industry has been out of order for many years. Accordingly, it is desperately short of talents.” Wang Xinming said. What Gifore Agricultural does is to put talents together to do things together. koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In 1980’s, there were only three undergraduates majoring in the agricultural machinery. Today, two have been in Gifore Agricultural, and another one is self-managed in Dazhou. Wang Xinming visited him once each year to advise him to join Gifore Agricultural. koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “Our competitor said we were engaged in monopoly. In fact, he didn’t understand that most first-class talents in the agricultural machinery industry in Sichuan were here, and it is certain that the market will concentrate toward Gifore Agricultural.” Deng Yonghua said.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Investors from the urban areas have a common view that the management quality in the agricultural companies is 20 years behind that in the modern companies.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Wang Xinming thinks the only way to make up the gap is to learn. After starting his business in 1998, Wang Xinming said that what he learned in the secondary school was not enough. In 2001, he pursued graduate study in Sichuan University. After graduation, he thought what he learned had slight significance on actual operation. He took the one-year president class in Tsinghua University. After that, he thought the president class was too short and he wanted to learn more, so he pursued EMBA in University of Electronic Science and Technology of China.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

It is said that his senior executives are afraid to receive his call after 11 o’clock in the evening after the business gets better. Wang Xinming will ask what they are doing. If they say they are reading, everything will be okay. If they say they’ll get to bed, he will chatter them to study hard. Only when they study hard, they can manage the company well.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Training provided in Gifore Agricultural is all-round. All employees, from Wang Xinming, senior executives, middle management to grass-roots sales employees, will be trained at different levels. Zeng Weidong said that 13 of about 100 students in the president class in Southwestern University of Finance and Economics were from Gifore Agricultural. “The company allocates millions yuan for training each year.”koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Why do we pay such great attention to study? Because more than 90% of our employees come from rural areas. So does Wang Xinming. “Even though it is the dog days and the temperature is up to 40℃, he can stay in the farmland for several hours to repair machine. City people couldn’t endure it. The reason that why I employ so many rural employees is that they have feelings for villages and farmers. Only you have feelings, you can have emotions. Only you have emotions, you can serve them well.”koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Wang Xiaopin acting as service staff in Leshan Gifore Agricultural providing after-sales services is a local farmer with high school degree. Wang Xiaopin is very familiar with his customers, just as they lived in the same village. The rural society in China is a typical acquaintance society. If employees can make friends with powerful farmers, the company may gain a large share of the market. “ No matter how many words your sales promoters say to him, it won’t work. However, he will buy only when his fellow-villager says you’re good.” Zeng Weidong said.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Zeng Weidong who has made contact with farmers for ten years has summarized two practical rules:koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

First, the stores serving farmers shall not be decorated too much. “Farmers are not willing to go to the grand hotel but the “the small restaurant” near the road. They don’t like to enter the place too beautiful.” It is also the reason why we set the headquarter in Pi County not in downtown of Chengdu.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Second, don’t talk like a book when you make contact with cadres in towns and villages. “With them, you have to say dirty words, and gorge on drink. If you make them happy, they give you a lot help. If you are pedantic, they think you are pretending and you are not one of them.”koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Be patient to serve farmers. Farmers know nothing about basic agricultural machinery knowledge. Many faults are caused by their misuse. You couldn’t bring out the facts and reasons for them but fix them regardless of responsibilities. Wang Xiaoping said the funniest thing he met was that a farmer requested for repair because he couldn’t start the machine. The real reason was that he didn’t open the throttle. It took him one hour just to open the throttle.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

If you live in the urban areas, please ask yourself one question: can you accept such business environment from your heart? If not, you may be not applicable to do rural business.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

    6. EndkoO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

From Zunyi to YanankoO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “Based on experiences from the global circulation industry, you can call yourself a leading company only when you have a market share of 20%.” Wang Xinming said. “Only when our sales volume reaches 10 billion yuan, we can say that Gifore Agricultural has some impact on the national industrial chain.” Ge ZHENG said.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

The reporter was deeply impressed when standing on the doorway of Gifore Agricultural for the first time. Looking inside from the door, the whole yard was like a construction site, full of noise from cutting steel tubes and metal clashing. On the left there was a building under construction. At the first sight, you would find it was not big. On the right there was a three-story white building surrounded by scaffolds. It was cuboid and on top one story was been building. Look inside deeper, and you would find two huge storehouses. From the metal fence on one side the red-green agricultural machinery in line show themselves. It is obvious that it is not like the headquarter we have imagined for a public company which has developed rapidly.  koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

What make us curious are its competitors and upstream suppliers. Jiang Haifang, president of Jiangsu Suxin Agricultural Machinery Chain Co., Ltd., ranking the second, paid a visit to Gifore Agricultural with his senior executives. The president of Lovol Heavy Industry Co., Ltd. hung about in the plant for a half day without saying hello. At last, he found Wang Xinming and talked with him for two hours.   koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “If it is a long march, we have just arrived at Zunyi”, Ge ZHENG evaluated Gifore Agricultural.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In 2009, Gifore Agricultural had the annual sales revenue of 1.6 billion yuan. The national gross output was 222 billion yuan, and Gifore Agricultural accounted for 0.72%. Among 1.6 million yuan above, Sichuan occupied 81.4%. Gifore Agricultural is just a leading company in Sichuan if putting down its status of being listed.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

In fact, Wang Xinming always dreams to go out of Sichuan. By the end of 2009, the company had established a ladder-type marketing network with 89 direct chain stores and 592 distributors, covering 9 regions such as Sichuan, Chongqing, Guangzhou, Guangxi, Shaanxi, Yunnan, Guangdong, Fujian and Zhejiang. koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “To be honest, the network density in most provinces is quite low. At that time, we called it ‘Inserting-Flags Strategy’, that is, insert the “flags” near the door of others to let them know what Gifore Agricultural does, and then perform integration step by step.”koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

After raising 200 million yuan since being listed, Wang Xinming has got a carrier accelerating realization of his dreams. By virtue of capital operation, Gifore Agricultural has performed integration with leading distributors in many regions such as Jilin, Liaoning, Ningxia and Gansu. Especially, it has entered into the Northeast market with the highest degree of agricultural mechanization. Acquiring Jilin Province Gifore Golden Agricultural Machinery Co., Ltd. (52%) (hereinafter referred as to “Gifore Golden ”) and Liaoning Huifeng Agricultural Machinery Co., Ltd. is a landmark for Gifore Agricultural. Meanwhile, Gifore Agricultural has served the engineering machinery sales market.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

However, it is clear that integration with the entrepreneurs grown up in different market environments is far more difficult than that with brothers in Sichuan.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Liu Bo, president of Jilin Province Gifore Golden Agricultural Machinery Co., Ltd. told Entrepreneur that what he valued was the capital platform after it was listed. He hoped that he could use this platform for financing so as to expand his tangible agricultural machinery market (a type of business similar to 4S-store clusters). Gifore Agricultural has never tried such type of business in South China. The Entrepreneur asked him, “Do you think the service concept of Gifore Agricultural is more advanced than Gifore Golden’s?” He answered, “We have our own service director who will be in charge of it. It is not within my duty. ”koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “In future, Gifore Agricultural may apply chain approaches and the chain mode to an very interesting market. ”koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Ge ZHENG, in pursuit of his EMBA in Fudan University, admitted, “Gifore Agricultural will have to try many things in the next five to ten years. Such attempts may either succeed or fail.”koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Just like GOME and Suning around 2000, no one believed that they could get out of the place where they started. There were too many reasons. For example, the subsidy market was  fragmented and focused on the county agricultural machinery bureaus. Accordingly, a majority of regional leaders with the background of power were formed. “If they have good connections with the agricultural machinery bureaus and have a easy life, why do they have to be integrated by Gifore Agricultural?” The insiders asked Entrepreneur.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

Wang Xinming responded, “We think such connections can not withstand the impact of the standard economy. We never worry about it.”koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

There was a rumor that the upstream manufacturers used to hold a meeting to discuss how to deal with Gifore Agricultural after it was listed. Another gossip said that China office of John Deere , which is the largest agricultural machinery manufacturer in the world, discussed Gifore Agricultural at its weekly meeting. Wang Xinming said, smiling, “the game between manufacturers and distributors will never stop. That is every normal.”koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “It shows that our channel values have not been revealed. We will use other approaches such as informatization to let them know our values.” Ge ZHENG said.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

But Ge ZHENG admitted that the market was so big that Gifore Agricultural could not develop it completely. “In the future, where will the competitors come from in the future?” “Maybe in the provinces with great market potential and regional leaders. ”koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

 “Maybe a central enterprise will emerge”, Ge ZHENG added, with a smile.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

On July 9th, the General Office of the State Council of the People's Republic of China released the Opinions on Promoting Sound and Fast Development of Agricultural Mechanization and the Agricultural Machinery Industry. On that day, the stock of Gifore Agricultural surged to limit.koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司


koO九鼎投资(600053.SH)_上交所私募股权投资领域上市公司

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