SF Express Founder Becomes Richest Billionaire Ever Created in China A-Share Listing
Yicai Global
/SOURCE : Yicai
SF Express Founder Becomes Richest Billionaire Ever Created in China A-Share Listing

(Yicai Global) Feb. 26 -- Wang Wei, founder-chairman of one of China's biggest couriers, is now worth more than USD16 billion after his SF Express Co. debuted on the Shenzhen Stock Exchange today as its most valuable company. Twenty-four years earlier, it was a very different story.

In 1993, a 22-year-old Wang could be seen buzzing around the run-down streets of the southern city of Shenzhen on his motorcycle. Behind him: parcels, not pretty girls.

At first, he delivered parcels to Shenzhen from Hong Kong free of charge, and took letters back to Hong Kong. His only reward: friendship, and perhaps a treat from a friend. But over time more people asked him to carry parcels, and paid him a modest fee. Wang made lots of friends and eyed a business opportunity.

He shared his idea of setting up a small company with the people who most regularly used his services. "It's a great idea," they all told him. "We'd like you to send all our parcels." His father offered him support and HKD100,000 (USD12,888) in startup capital.

In Hong Kong's Bolan Street, Wang found a storefront with just over 30 square meters and asked some good friends to help set up a small business for courier services.

Low Price Gambit

Wang and his five partners crossed between Shenzhen and Hong Kong with large traveling bags and suitcases, charging CNY40 (USD5.83) for each express delivery, while competitors cost CNY70.

Wang grabbed a small market share from rivals with a low-price strategy. His company quickly boomed. On March 26, 1993, SF Express was officially registered and set up in Shunde, Guangdong. After some time, the company monopolized the partial freight transport business in Shenzhen and Hong Kong. Overland between Shunde and Hong Kong, SF Express delivered 70 percent of courier parcels.

That same company debuted on the market today after completing a reverse merger with Maanshan Dintai Rare Earth & New Materials Co. [SHE:002352]. Shares of SF Express jumped by the daily trading limit of 10 percent to close at CNY55.21 each. The listing makes it the biggest Chinese courier by market cap, surpassing ZTO Express Inc. [NYSE:ZTO], which went public in New York last October, raising USD1.4 billion.

Pot of Gold

When recalling the painstaking start of his business, Wang said he began to set up SF Express at the age of 22, and the firm had an initial scale when he was 25, earning him his first pot of gold. Some may say it is rare to see a man like Wang who did not impulsively turn into an 'upstart' from a wunderkind.

Wang said he acted like an upstart at age 25. He clearly understood the feeling of being impoverished and discriminated against. When he made his first real money at 25, he was very conceited and could not wait to tell the world that he had become rich.

Like other parvenus, Wang spent lavishly. But the feeling of being an upstart did not bring him any real sense of fulfillment. So he felt fortunate to find Buddhism during that period.

"As my career kept moving forward, I cultivated a broader vision and become more open-minded," he said. "I feel grateful to my wife, who reminded me of negative aspects to keep me sober and calm when I was arrogant. The most important thing is that Buddhism has kept my inner heart peaceful, and to understand the causal relationship in it enlightened me."

Wang placed eight figures of Buddha in his office. Later, perhaps owing to his paying respect to Buddha each day, he acted more circumspectly and led SF Express to develop more rapidly, but consequently, the company was also in urgent need of funds. Private businesses struggled to get loans from banks, and what Wang was facing was no exception. The domestic express delivery market had lower requirements, and several employees and a car were already enough as they could distribute advertising leaflets around high-end office buildings to solicit for business.

Mortgage Finance

The vigorous development of the industry also resulted in the emergence of plenty of couriers. To occupy the market requires the swift set up of outlets. A lot of money would be needed for the layout of the huge Chinese market. But having difficulty in getting enough funds from banks, Wang had to mortgage his stores or properties to banks, which was the fastest way to get loans.

The money from banks was used to invest in SF Express' service points across the country, but the crazier expansion of his competitors forced him to take on further mortgages for nine in total. In 2005, the year of fiercest competition, the lack of funds became the main obstacle to the company's development. After thinking about it for three days, Wang decided to mortgage SF Express for CNY4.2 million to expand its domestic business. He knew the company would fall behind unless it could open more branches.

Since then, SF Express had expanded its branches into nearly all China's cities, which strengthened its channel control and ability for process orders. The sudden increase in the number of orders gave Wang another bolder idea: air freight.

At that time, there had not been any express company that had the courage to step into air transportation in the home market. Wang negotiated with a domestic airline, asking them, "How many cargo planes do you have?" "Five," they answered. Then he said, "I'll take all of them."

Logistics Department Store

With the fastest delivery service, SF Express became synonymous with 'next day delivery.' After revolutionizing the industry with airplanes, Wang put the formation of an airline on his agenda. At the end of 2009, approved by the Civil Aviation Administration of China, SF Airlines began operations, providing air transportation for the company's express business.

Like a rising plane, SF Express seems to have entered into a stage of high-speed development. Domestic and international express, warehousing, and SF Airlines account for just one-third of Wang's strategic layout. It is his vision for SF Express to extend to the whole retail business including B2B, B2C, C2B, and O2O, with supporting businesses including finance, mobile internet, and Big Data strategy. Wang summarized his blueprint for SF Express as "building a 'department store' in the area of logistics.

Can Wang realize his grand scheme? His rivals' comments are the most objective. Yicai Global contacted the vice president of one company who asked not to be named. "SF is indeed walking in the forefront of the industry for its every step," he said. "But this means that we have to follow it closely. The first-mover advantage indicates risks although it brings benefits."

"So whether SF is able to complete its layout could be seen from another angle, that is, whether this industry leader will make mistakes," he said. "If it does, then, all similar enterprises will rush to divide up the market. "

Non-descript Convenience Stores

SF Express' 'Heike' convenience store were regarded as 'non-descript' by consumers as Wang planned a new future for SF and started the 'Heike' layout. The market questioned Wang for the first time since he had became an entrepreneur. Did Wang really make a mistake? Would 'Heike' be a chance for SF Express's rivals to catch up?

Ever since its establishment, SF Express has run smoothly, except for the launch of its convenience stores in 2014, which received tons of doubts from the market.

On May 18, 2014, a day meaning that 'I'm going to make a fortune,' SF Express officially launched the first 'Heike' community convenience store, and claimed that it would open 3,000 across the country. Wang's ambition seemed to again lead SF to new highs. In just a few months, more than 2,000 stores landed across the country, covering all the regional cities.

From Wang's strategic positioning of SF, the stores served as an outlet for courier services, which were designed to solve the 'last mile' issue facing the industry.

Shared Costs

Cecss.com's chief expert Xu Yong told Yicai Global, SF's introduction of 'Heike' in the form of convenience store was actually a solution to share the operating costs of its courier delivery outlets. Moreover, it could connect SF's business units and help the company achieve a full integration across SF Express, sfbest.com, SF app, SF-Capital, SF's community O2O service platforms and rural logistics, which would create immeasurable space for SF's development in the future.

However, another expert in China's courier industry Sun Chun had a different idea, saying 'Heike' was a non-descriptive existence that gathered various functions but could not do the best in each one. Sun said, "In the eyes of retailers, the 'Heike' store is small and has limited display space. If you call it a convenience store, 'Heike' violated some basic principles of shop design and display. But in the views of logistics specialists, if 'Heike' aimed to provide extended convenience services (courier services), its investment in fixed assets is obviously too wasteful."

Facing doubts over the stores, Wang thought long and hard. "B2C is the future direction, and SF can explore how to serve C-end customers through 'Heike,'" he realized. "Whether to wait for a mature business mode before setting up a store, or to set up a shop first and then explore the business mode? We choose the latter."

SF Express Vice President Chen Xu further elaborated on Wang's ideas for 'Heike' layout at 2014 China E-Commerce Cross-Industry Summit. He said, "There are three main ways to use SF's physical stores to carry out food O2O business: in-store commodity display and promotion, on-site ordering via electronic equipment, and self-pickup of sfbest.com packages." At the meeting, Chen deliberately opened a PPT carrying a message indicating there are 3,000 'Heike' stores.

Argos Model

In fact, the 'Heike' model already existed in other countries. For example, the business format of Argos, the top retailer in the UK, is similar to 'Heike.' But unlike 'Heike,' Argos has been committed to combining multi-mode and self-service shopping based on electronic touch screens. It is more like a traditional convenience store, rather than courier outlet, and it runs in the same way as traditional convenience stores. Vinux Beijing Information Technology Co. is the first company in China to refer to the Argos model. The company created a community business mode based on Argos, combined with China's reality.

It is worth mentioning that when 'Heike' had just started, one of the partners was Vinux. However, due to unknown reasons, the two sides terminated cooperation. How does the former partner see the 'Heike' system? Vinux's CEO Wang Dipeng said, "We are more inclined to do an open platform, while SF Heike is a closed one."

The closed system refers to the closed-loop layout, consisting of SF Express, cold chain, e-commerce direct supply, cross-border logistics, Shunyin Finance, Heike stores, and Heike O2O. Obviously, it is a large closed loop. The strategy that Wang set for Heike also fully embodies his vision for the future of SF. But he cannot ignore the difficulties faced by Heike.

Low Foot Traffic

Shao said that from the large number of Heike stores throughout the country, SF is indeed ahead of other couriers at the moment, but foot traffic at Heike stores always stays low and many pre-set functions are still being explored such as courier services and the platform connecting all business units of SF. Should Heike be adjusted next step? This is an important issue that Wang must consider.

"We will fail if we do the e-commerce logistics now. In fact, we may face the same outcome if we do it in the future," Wang once said. In any case, it seems his choice is to do e-commerce logistics, and Heike is the key to the important layout.

What will the future of Heike be like? Wang also showed a lack of confidence in it. He said, "Heike is not a national unified management mode. We are still groping its way now."

If Heike fails, the foundation of SF will be struck and the company's position in the market will be hit, in Wang's eyes. If it succeeds, SF Express will remain ahead of its rivals and its leading position in the express delivery industry will be further consolidated. Especially when the domestic express delivery market was gradually opened to foreign companies, Heike's success or failure means more to SF.

First to Go Public

Earlier in 2015, speculation had it that SF Express would be the first company in China's express industry to go public. But Wang did not express much enthusiasm for SF's future listing then.

"The benefit of going public lies in nothing but financing, so as to obtain the capital for development of a corporation," he said. "Admittedly, SF is also short of money, but it cannot go public just for money. After going public, an enterprise will become a money-making machine, and will pay close attention to changes in its stock prices every day, which is detrimental to the work of the enterprise's management."

As for the reason why SF Express would not list, Wang told his employees, "The environment we face after listing will be different. We shall be responsible for our investors and ensure that our stock price rises continually. Pursuing profits will then become the only purpose of our company. In that case, SF will get as fickle as others in our current society."

It seems that Wang has always been alert to external capital. For a long time when other express enterprises were attracting external investments, Wang refused to follow suit.

The Brink of Bankruptcy

In 2004, when FedEx Corp. planned to make inroads into the Chinese market, representatives were sent to make contact with express delivery firms, with a view to an acquisition. It then offered CYN5 billion to buy SF Express, which had annual revenue of just CYN1.3 billion. But Wang refused and told FedEx that his company would definitely surpass it someday.

However, refusal of any outside investment has also led SF to the brink of bankruptcy, especially after the financial crisis of 2008. At that time, a large number of couriers went bust, but Wang believed it was better to go under than surrender. An SF Express employee told Yicai Global that everyone was terrified then and did not know what to do.

Wang told them "even if SF goes bankrupt, we have to make everyone remember there was a private company called SF, which scared its competitors, but more importantly, made them respect it deep down in their hearts. A person can lose, but cannot lose without dignity. A person can die at any time, but it must be worth dying."

Although SF survived the economic recession of 2008, with the increasingly fierce competition, Wang was forced to think seriously about the value of capital. SF Express still refused to go public, but it attracted investors including Suzhou Oriza Holdings Co., China Merchants Group and Citic Capital Holdings Ltd. The three signed agreements to become shareholders, holding no more than a total 25 percent of its stock. Their capital would serve to strengthen SF Express's core resources, such as its information system, transit links and aviation hubs.

Listing Speculation; Official Denials

The outside world shared the opinion that with investors SF Express would be listed in the near future. But the company's official announcements denied it.

SF Express' announcements came as a relief to its competitors, because it seemed the Chinese market still left them an opportunity to exceed SF. Rivals says Wang has a merciful heart, but is a market 'killer.' Employees say he has three traits: he shows great respect for his employees; he has a grand ideal; and he bears social responsibilities and cares for the underprivileged. Wang has a different face inside and outside the company.

As a businessman, Wang shows no mercy toward competitors. SF Express has been a powerful player since it was formed. It adopted the low-price strategy in the first place, grabbing market share amid intense competition. Its success is by no means accidental.

When asked about SF Express's development, Wang said, "To be honest, I do not believe in coincidence so much. Why would coincidence exist? Only those who are ignorant will believe in it. For instance, winning a big prize out of the blue will be seen as an accident. In fact, when all causes and results are taken into account and then compared, one will see that everything is inevitable. So, what we should do now is to make a great number of uncertain, seemingly accidental things into inevitable things by taking advantage of SF, a quite good platform."

The transformation from coincidence to inevitability reveals Wang's understanding of the SF Express' success: the market does not believe in accidental success at all. Any success derives from inevitability.

Wang has no hesitation in leading SF forward in an extremely competitive market. After all, survival is the most crucial thing for a company. "In this respect, I do not have a fixed rule," he said. "Everything should boil down to the problems we confront and the things we need. Sometimes we just want to apply the rule we have learned to other things, but there will definitely be mismatches since we have no idea of its original purpose. For the past 20 years, I have been searching for a suitable rule for me, and the cause-and-effect cycle from Buddhism has finally enlightened me greatly."

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