Shantou University Business School Economic Forum

11 May 2001

Topic: On Corporate Strategy

Mr. Li Ka-shing shares his valuable experience in a Q&A session with over 100 faculty and students at Shantou University. The session was also broadcast live via the campus-wide Intranet.

Q: When a business implements a strategic shift, many adjustments must be made within the organization. Which adjustments do you feel are the most important?
A: In my personal experience, the first and most important step is to determine the right direction, but before you can do that you need to grasp the most updated and accurate information.

You need to pay attention to the company’s cash flow. Many profitable companies run into problems when they lose their cash flow.

Staff moral is also a very important element. In a commercial society, people remain an organization’s most prized asset.

You must know and understand your business like the back of your hand. Otherwise your company could be here today, gone tomorrow.

Q: What should a business do to meet the new challenges presented by the age of information technology?
A: Information technology can help you run your business more efficiently, saving you time and money. So the greatest challenge in the IT age is to find different ways to increase productivity.

Q: Do you consider your firms to be competitive?
A: I would say that 99% of our businesses are competitive. In days bygone, communications was less advanced, and human interaction was more restricted. But today, people all over the world can get on the Internet and compare prices instantly. If you are not competitive, you will be eliminated. To raise you competitiveness, you must first establish a firm foundation. An organization is like a mechanical watch, if one of the gears break down, the watch stops ticking.

We have businesses that are doing very well, and businesses that could be further improved. We remain competitive by continuously building on our strengths and improving our weaknesses. That’s the way we operate.

Q: How will traditional business fare in the New Economy? Are you optimistic about emerging industries?
A: We are involved in a number of new industries, such as biotechnology, and some others that have not yet been disclosed. These are not capital-intensive industries. But if traditional businesses can incorporate new technologies, they can enhance their efficiency and increase their profit. All of our companies are doing just that. We have businesses in 27 countries besides Hong Kong and the mainland, and every one of these businesses is doing well. It is wonderful that traditional businesses can integrate with emerging technologies.

Q: Many companies, such as mainland’s Haier, develop a unique management style. Do Cheung Kong and Hutchison Whampoa have their own style of management, and if so, what are its characteristics?
A: I understand Haier is in the electrical home appliances business. We are a multi-national corporation with many different types of businesses. We adopt a western style of management, but with Chinese characteristics. In foreign companies, there are many Quarter CEOs who are forced to resign if their company fails to perform. But we are not like that. We are a compassionate organization. For instance, if our peers in the same industry have reported a 90% profit loss, and we record a loss of 60%, then I would reward the CEO. Conversely, if other companies are making $100, and we are only making $80, then I have to ask why we are not performing as well as other companies.

Foreign companies tend to focus on efficiency; Chinese companies lean toward compassion. We are not a small operation. One of our companies is ranked 90th in the world, and another is ranked 200th. Haier is a very successful mainland company. They started by making refrigerators with German technology. Their business is making very good progress. But we are more than a manufacturer; we have a manufacturing business, but in a different industry. We are involved in the oil industry. Our container terminal business is the largest in the world. We handle over 30 million TEUs every year. We are developing 3G mobile networks in many countries, so the telecommunications business is a key component. Many analysts are saying that the 3G launch will be delayed, that we will not be able to roll out 3G services by next year. I have already seen these handsets, and in Japan, 5,000 people will be using these handsets in a trial run by the end of this month. To me, that is a success.

In short, information is most important. Haier is a picture of success, but we are in a different industry.

Q: How did you formulate your strategy on Orange?
A: Orange was a miracle. About 11 years ago, we were going in two directions-we were operating a one-way mobile system, and at the same time we registered Orange which was a PCS system. I tried it for myself, and the reception was very clear. The operation was very successful.

However, very few people know why we finally sold the business. The value of the business was extremely high. Someone came to Hong Kong and offered us US$30 billion, but they were not the only interested buyers. Someone else had offered about the same amount. I felt that we should sell right away. If we were to build a 3G business with the same number of customers, we would only require about US$12 billion. 3G offered everything 2G had and much more, including data transmission. So the transaction took place less than two hours after we met, and it became one of the largest transactions and the most profitable deal in history.

Q: It is said that when you do business in China, you need to bring a lawyer and an accountant. What kind of changes are taking place in China’s investment environment? What are the differences compared with other countries?
A: There are provincial and municipal officials, as well as reporters present. May I speak frankly? Even if you have the best accountants and lawyers, and ample funds; even when you are well prepared, sometimes things can go awry. China is the most populous nation in the world with enormous untapped potential. But in the past, foreign investors coming to China have been placed at a disadvantage. The Central Government has a perfect record for honoring its agreements with foreigners. But there is still room for improvement at the provincial and municipal levels. This is something that all of our leaders must review. In general, western countries take contractual agreements very seriously. It has only been about 20 years since China opened up to the world, so I believe things will improve gradually, especially now that we have entered the WTO. Even though we see some trouble spots, we remain confident.

Q: What were the most difficult circumstances that you had to face? How did you overcome those obstacles?
A: Times were really tough in the beginning. When I started my business in 1950, I only had HK$50,000, so I was in a tight spot financially. I already had some work experience, but I had an advantage in competing with other companies-I was willing to learn the latest industry trends. Actually I do not consider myself a good businessman. First, I don’t like to entertain people. Second, I don’t like to be acquiescent. Third, I always make good on my promises. But other people don’t always keep their end of the bargain. Doing business may be tough, but I am willing to learn, to innovate, and to work hard, which are the reasons why my business can continue to grow. We focus on our core competencies while looking for new areas for expansion. New businesses sometimes fail, and sometimes succeed. But the ones that succeed can be very profitable. This has been my experience. Setbacks and difficulties are ways to build character.

Q: You have so many outstanding executives working for you. How do you manage and inspire them and also allow them to retain their creativity and initiative?
A: I feel very fortunate that I have a very good relationship with my colleagues. I was once an employee myself, so I know what employees want. The turnover rate for senior executives at my company is the lowest of any major company in Hong Kong, probably under one percent over the last ten years. To attract and retain good staff, you have to offer them good remuneration and good prospects, and to make them feel important. Of course you also need a good system of checks and balances, which is vital to the health of the company. Even the best people can turn bad if you leave them isolated.

Also, you can’t trust someone just because he is a relative. You have to spend time with that person, understand his way of thinking, and if it is positive like your own, then you can trust him. If you employ someone solely because he is your relative, then the company will certainly suffer. On the other hand, if you have worked with someone for a length of time, and you feel that he is heading in the right direction in life, and he takes care of every important assignment that you give him, then you can trust him as if he were your own family.

Q: What is the most crucial factor in doing business? As a businessman, do you feel a person’s moral character is the key? Which do you consider as more important for a school to impart, moral education or vocational education? Do you follow Laotze, Buddhism, or Confucianism in your way of doing business?
A: I had very little formal education myself. But when I was young, I knew I had to sacrifice reading novels for books that were beneficial to my career. As for my philosophy, I have integrated some Confucianism, some Buddhism, and some Taoism. Reading philosophy helps you find peace of mind when you are unhappy. As for moral character, there is an old saying: when the world is chaotic, you depend on the abilities of the leaders, but when the world is peaceful, you look at his moral character.

You may think I am conservative, but I consider moral character more important. What good is a talented person if you need three people to watch over him day in and day out?

Q: No matter how big a corporation may be, a small tactical mistake could be very costly. How do you prevent such mistakes?
A: This is a difficult question to answer. Every responsible officer should be familiar with the company’s cash flow. Barings, which was one of the world’s best-known investment banks, allowed one of its officers to make huge trades that eventually brought the bank down. In a globalized operating environment, you must proceed cautiously and not be too greedy. You should also listen to your senior executives often and not go it alone.

Q: To be successful, one must not squander opportunities. How important was this factor in your career, and how can someone make the most of his opportunities?
A: To be honest, when I started working at the age of 12, back in 1950, it was all hard work and continuous learning. Even after I founded my own business, the first five years were built on hard work rather than opportunities. As the company grew, more opportunities came knocking. The most important thing is to improve yourself, and learn everything you can, about politics, economics, and industry trends. The more you know, the more prepared you will be when opportunity knocks. If you are lazy and wile your time away, you would not know how to take advantage of opportunities even if they stared you in the face. Also, it’s easier for opportunities to find you than for you to go looking for opportunities. I am fair and honest. People who have worked with me in the past are always pleased with our relationship. Over the years, many opportunities were presented to me by people who had worked with me previously.

Q: How do you handle a difference of opinion?
A: You should listen to the views of experienced professionals. When I receive a proposal, I will consider its merits even if I do not think it is suitable. Sometimes, 90% of what they say proves that you are right, but you may not know about the other 10%, and this 10% could turn out to be the key to the project’s success. This is why you must have humility and listen to others’ opinions. Of course, as head of a company, you have to have a deep understanding of the businesses you are in; otherwise, you can easily make a mistake. If you are not diligent, even the biggest companies can run into problems. Today’s business environment is vastly different. In the old days, if you made a mistake, the impact on your overall business was limited. However, a wrong decision today could have very significant consequences. So you have to make decisions based on expert opinions as well as your own knowledge.

Q: What is your business philosophy?
A: In a commercial society, the more money a businessman makes, the better. If somebody presents you with an attractive opportunity, and it is perfectly legitimate, most people will take it. But if I have reservations and don’t feel comfortable with this business, then I would rather give up this opportunity to make money. For instance, we made a very large investment in the tourism industry of a foreign country, with projects that include an airport and several golf courses over a large tract of land. The Prime Minister of this country granted us a casino license. My manager knew that I didn’t like this type of business. He suggested a solution that could generate a profit without putting up any capital. His idea was to lease the casino license to another foreign investor for US$150 million. At the time I rejected this idea because I did not want to be involved in the gambling business. When the Prime Minister came to visit me in Hong Kong, he said, “A whole army of investors wants me to grant them this license. I wanted you to have it because you have made a large investment here. Why don’t you want it? You colleagues asked me to convince you that this is a good business.” We held a meeting and decided to construct another building outside the hotel, and we would lease the license to whomever they wish for three years. My managers always say that I don’t like to make easy money, that I only like to earn money the hard way. So this is my business philosophy: You should make money only in a legitimate fashion. In the US, they teach MBA students how to squeeze the last penny out of a deal. But we Chinese think differently. Making money is good, but not if it causes harm.

Q: How do you take time out from your busy schedule to learn the latest trends? How do you keep up a high energy level? How do you develop relationships with people?
A: Firstly, it is important to keep in good physical and mental shape. With regard to learning, in order to have more time to learn more about the business, you will have to give up some things like television and novels. Always keep a clear head and don’t be bothered by the little things. You have to treat people fairly. But being fair doesn’t mean you have to put your money in other people’s pockets. I am not very energetic. Nowadays when I read in bed at night, I fall asleep with the book in my hands nine nights out of ten. In the past, I could always finish the book when I wanted to. But now I fall asleep even when I don’t want to.

Q: Charisma is very important for managers. How is your charisma applied? How do you develop character?
A: I am not particularly handsome. The important thing is to treat people with sincerity. If you are not honest and sincere, people will leave you sooner or later. A company is built on the efforts of many individuals, and not just on one person. A single individual cannot accomplish much.

In the Han Dynasty, Xiang Yu was very brave and won many battles, but in the end he failed. You can’t succeed on charisma alone. Treat people with sincerity and build a good organization. Otherwise, it doesn’t matter how famous or how capable you are. A company needs a good structure, good organization, and good people. If everyone works in concert, then you can succeed.

Q: What type of qualities should business school students develop?
A: Curiosity is one of them. But the most important quality is good English language skills. In Hong Kong, good English skills are essential. Secondly, you have to listen often to what people in your industry are saying. You have to improve yourself. You have to read more books. But some foreign books contain only western thoughts. In a knowledge economy, the wealth gap will only grow wider. If you don’t have a good education, your opportunities will diminish. Over the past few decades, the income and life quality of people with limited education in western countries have been capped by inflation. The living standard of well-educated people has continued to rise. That’s why all of you here today are very privileged.

Q: You have never written an autobiography or shared your secrets of success with others. Do you have any plans to do so?
A: This idea has been brought to me before, but I was not interested. I want to write a book, but only for my two sons. I am afraid I might offend someone. A book will be written, not to promote myself, but to provide a guide for our young people. Young people today seem to think that the ends justify the means. But our traditional Chinese philosophy of life is the best. That means hard work, trustworthiness, frugality, and building a good reputation. How much you learn will be the yardstick of your success.