Back to the teenage years

Chapter 540 Rupture
The atmosphere of the negotiations took a sharp turn for the worse.

Zhang Yunqi's words made Liu Jinshi's face look particularly ugly. He even thought that Zhang Yunqi was threatening.

You should know that in the VCD player industry in the 20s, Sony and Philips, as the two giants of global consumer electronics, were not only the joint leaders of technical standards, but also the most direct competitors in the core component market. In the field of VCD player industry in China, the fierce and complex cooperation and competition relationship between the two giants has profoundly affected the pattern of the entire industry.

In terms of cooperation, Philips and Sony are co-developers of CD and VCD technical standards. After the rise of DVD technology, Philips and Sony once again jointly led the new technical standards. The two giants mainly formed a technology monopoly through cross-patent licensing cooperation, suppressing the independent research and development of Chinese companies! Since 1995, Chinese VCD manufacturers have had to pay Philips, Sony and other companies about US$5 to US$15 in patent fees for each disc player they produced. As a result, until the end of the 90s, China still had not achieved complete independence in the movement or decoding chip.

In terms of competition, the two companies adopt differentiated strategies towards Chinese manufacturers. Philips' strategy is more inclined to occupy the market through large-scale supply of movements (such as the CDM-12 series), while Sony uses technology licensing fees to consolidate its voice and increase customer stickiness by bundling decoding chips and optical components (such as servo control, decoding algorithms).

In the past, the two sides competed fiercely for large orders from major manufacturers such as Aido, Shinco and BBK. Since 1996, in order to defeat competitors, seize market share in China and form a monopoly position, both sides have offered generous prices to the major manufacturers, which has given the suppressed Chinese DVD player manufacturers a certain amount of bargaining room.

Liu Jinshi was mentally prepared for this.

Aiwa Electronics couldn't help but use Sony as a bargaining chip to hit him, and Sony couldn't give up the fat piece of meat of Aiwa Electronics. However, it was still the early stage of the development of VCD players, and Sony's behavior was really too ugly! The technical support of the VCD player movement made him feel very uncomfortable in the meeting room!
But no matter what, facing Sony, which is trying to snatch food from his mouth, and Zhang Yunqi, who is playing both sides, Liu Jinshi realized that he seemed to have no way out.

There are two core reasons.

On the one hand, at the end of last year, Philips and Aiwa Electronics reached their first cooperation. Within three months, Aiwa Electronics purchased 12 sets of Philips CDM80 series movements, which solved Philips' movement inventory problem in one fell swoop and became Philips' largest purchaser of core components for DVD players. At present, Aiwa Electronics' orders have accounted for % of Philips' overall sales of movements in China! It is no exaggeration to say that Zhang Yunqi is Liu Jinshi's God of Wealth.

This also attracted great attention from Philips headquarters.

The second reason was that Philips wanted to expand the production of its components production base in Shanghai. He was very optimistic about the Chinese DVD player market and proposed this to Philips' Netherlands headquarters. However, the market is dynamic and unpredictable. As the general manager of Philips' components production base in China, he paid more attention to and studied the Chinese DVD player industry than others could imagine. However, no matter how much Philips and Liu Jinshi valued the Chinese DVD player industry, they knew that change was the eternal theme of the market. No one could accurately predict tomorrow's market trend. He naturally could not have predicted that the assembly capacity of DVD players would suddenly surge in the middle and end of 1996, leading to a shortage of movement.

In the business world, it is crucial to find certainty from the huge uncertainty in the market. For Liu Jinshi, deep binding with large buyers is the most important certainty!
By winning this huge order from Aiwa Electronics, he can be sure that Philips' production base can at least expand its production capacity fourfold and cover the annual sales target without worrying about inventory squeeze and capital chain problems. Most importantly, once he wins this largest order in the Chinese and even global VCD player market and reaches in-depth cooperation with Aiwa Electronics, Philips will have an absolute dominant position in the field of core components supply for Chinese VCD players in the next year! This will form a huge brand effect.

For these reasons, this order is extremely important.

At least for Liu Jinshi, its value even exceeds the order itself!

In this regard, before Liu Jinshi came to Jiangchuan, in order to reach a cooperation with Zhang Yunqi, Philips headquarters gave him a lot of leeway in terms of supply price and patent fees, so that he could act according to circumstances when negotiating with Zhang Yunqi.

But the cooperation conditions proposed by Zhang Yunqi are extremely harsh. They involve core technical aspects and are beyond his authority. However, he must come up with more attractive chips than Sony to save the situation!
Liu Jinshi fell into a very passive situation.

He pondered for a long time, but could not find a good enough response strategy for the time being. Finally, he calmed down and said calmly: "As I said, business is business, Mr. Zhang. Sony has its own marketing strategy, and Philips will definitely stick to its own market operation bottom line."

Zhang Yunqi understood what Liu Jinshi meant and nodded. Then he looked at the time and said, "It's noon now, Mr. Liu. Let's have a quick meal together."

Liu Jinshi glanced at Zhang Yunqi and nodded with some difficulty: "Okay."

This concludes the meeting.

Zhang Yunqi and Liu Jinshi left the office building.

A group of people walked through the cherry blossom forest under the building. It was the season of March, the temperature was pleasant, the cherry blossoms were in full bloom, the new production base was hidden among the green plants, everywhere was full of vitality, and the air was fresh. The only drawback was that the negotiations between the two sides were almost broken down, and everyone did not feel a pleasant atmosphere at all, but rather a bit of awkwardness and dullness.

Zhang Yunqi handed Liu Jinshi a cigarette and took the initiative to break the silence: "When did Mr. Liu return to China?"

Liu Jinshi lit up a cigarette, took a puff and said, "I had been working at Philips' headquarters in the Netherlands before, and was transferred back to the Shanghai branch two years ago to lead the VCD player project."

Zhang Yunqi smiled and said, "It has been two years since I returned to China. How do you feel about the business environment in China?"

Liu Jinshi thought for a moment and said, "China's biggest advantage now is its vast market prospects. What impressed me most is the hard-working, professional and cheap workers. As for the downside, it should be the low degree of marketization and the many restrictions. In my opinion, foreign giants like Samsung that import VCD players into China, although they have advantages in technology and brand, are restricted by policies, costs and market strategies. Therefore, they will not be able to dominate the Chinese VCD player market in the future, and will never be a rival to companies like Aiwa Electronics that have strong capital, local background and sufficient understanding of the domestic market."

Zhang Yunqi smiled and said, "I hope it's as Mr. Liu said." In fact, he felt that Liu Jinshi was indeed quite capable and could see through the general trend of China's VCD player sales market. In this field, foreign companies such as Samsung were indeed beaten badly by local manufacturers in the past. This may be an important reason why Liu Jinshi focused his business on the field of VCD player component supply chain.

Zhang Yunqi continued: "Mr. Liu seems to have many ideas about domestic marketization issues, for example?"

Liu Jinshi smiled. After some small talk, he seemed to have recovered a lot. He said, "For example, strict control is imposed on the access of foreign-funded enterprises. Joint ventures must be established. Secondly, there are import quotas and high tariffs. A VCD player is subject to a 40% tariff when it is imported. There are also issues of piracy and patents. Various pirated software and hardware are rampant in the market, which has greatly compressed the profits of foreign companies that rely on hardware sales. Local companies are better at using low-price strategies to compete in the market, not to mention the disadvantages of foreign companies in channel control. In short, in order to develop their own local companies, the domestic market basically takes a laissez-faire attitude in these aspects, but tries its best to suppress foreign companies and set up various barriers. How can we talk about openness, liberalization of the market, and letting the market play a decisive role in resource allocation?"

Zhang Yunqi thought about it and nodded again.

At present, the wave of globalized economy is in full swing. The concepts and theories supporting free economic trade are almost the most powerful underlying economic operating logic in economics from now to 2018. It is not surprising that Liu Jinshi, who has read a lot of foreign books, has such ideas. Not to mention, as a senior executive of a foreign company deeply involved in the Chinese VCD player industry chain, he is indeed facing these difficulties and conflicts of interest. From the perspective of a purely market-oriented economy, foreign capital such as Philips has indeed not enjoyed equal market competition treatment.

However, if we look at the issue of market economy from a higher dimension, then Zhang Yunqi undoubtedly believes that the issue of economic development has never been a purely economic issue, and there has never been a universal method or law. It is a continuous social behavior. The present and future of China's economy will not follow the path that Liu Jinshi expects.

Zhang Yunqi smiled and said, "There is nothing wrong with what you said, Mr. Liu. The various buffer mechanisms in this gradual reform will indeed reduce efficiency and lead to resource misallocation. It is not very friendly to foreign companies. But does Mr. Liu agree with this view that the core purpose of market-oriented reform and opening up is to turn a large agricultural country into an industrial power?"

Liu Jinshi nodded: "That's natural."

Zhang Yunqi said: "Although Mr. Liu has been abroad for many years, he is also a Chinese passport holder. He should know that our country still has 8.6 million rural population, and the average annual income per capita is only 1478 yuan. In this case, as a poor agricultural country with poor manufacturing capabilities, how to turn these farmers into professional workers must be the core of industrialization! This is not only a change in work, but also a complete change in ideas and living habits. However, this change will not happen automatically, it requires learning and training, and this kind of learning and training can only be completed in factories, such as the township enterprises that emerged in the 80s."

Liu Jinshi thought Zhang Yunqi's view on market-oriented reform from the perspective of social human resources was very novel, but he did not agree with the township enterprises mentioned by Zhang Yunqi. After thinking for a while, he continued: "As far as I know, in less than ten years, more than 70% of domestic township enterprises have collapsed. Why did they collapse? A unified domestic market has not been formed, competition is disorderly, and various small factories have been repeatedly built with the support of various local governments. The production efficiency and technical level are extremely low, resulting in the loss of a large amount of state-owned or collective assets."

Zhang Yunqi nodded and said, "Mr. Liu obviously has a deep understanding of the development of the domestic economy. I completely agree with this view. The price is indeed painful, but at least there is one thing we cannot deny. Township enterprises have taught 80 million farmers to operate injection molding machines."

Liu Jinshi was stunned.

Zhang Yunqi pointed to the finished product warehouse not far away, where Aihua Electronics VCD players were being loaded: "As you can see now, these VCD player cartons come from the former Ziyun Town Printing Factory, and the screws are produced by the Sanshui Village Hardware Factory. If there were no township enterprises, 100% of these workers would still be growing rice in the fields. If there were no workers trained by these township enterprises, how could our industrial chain be formed quickly at low cost and produce agglomeration scale effects?"

Zhang Yunqi added: "Although most of those township enterprises have closed down, resulting in huge trial and error costs, I still believe that they have made great contributions to the historical process of China's reform and opening up. The reason is simple. Since ancient times, China has had a dual urban-rural structure. How difficult is it to break this underlying structure? But it is precisely these township factories that are "close to the land but not to the hometown" that have made hundreds of millions of farmers familiar with industry and factories, trained a large number of professional workers, and pushed them to flow to cities and factories at extremely low prices. In a sense, the underlying logic of this method is extremely cruel, and it is a variant of the scissors gap of agricultural products! But as a market speculator who is deeply involved in China's electronics industry, I cannot deny that I am enjoying this cruel dividend, and I cannot deny that this is the reason why my production base was able to start production in just half a year. Similarly, Mr. Liu, you cannot deny that this is the core reason why your company can land in China and deeply participate in the supply chain of China's electronics industry to earn hundreds of millions of dollars."

Liu Jinshi pondered over these words for a long time. He said, "This is profound and insightful."

"Thank you, Mr. Liu." Zhang Yunqi said, "You have always emphasized the purity and independence of the market economy. This reminds me of a class I took at Hunan University some time ago. Our teacher talked about Joseph Schumpeter's Theory of Economic Development. There is a sentence in that book: Nothing is purely economic. Other dimensions always exist and are often more important."

"Which dimension do you think is the most important in the field of China's electronics industry economy?"

"That depends on what you believe."

"What does Mr. Zhang believe in?"

"I believe China will be better." Zhang Yunqi turned his head to look at Liu Jinshi: "Of course, this belief has no professional basis. It comes from Sima Qian, Du Fu, Su Shi, from 'a big river has wide waves', and from admiration for the hard work of hundreds of millions of ordinary Chinese people. It affects my perspective on problems and the way I process information, but I accept this limitation and have no intention of changing it."

"Mr. Zhang's level of confidence makes me ashamed, but why do you think this kind of belief has limitations?"

"Because there is another kind of belief at the level of reality."

"What to believe?"

"I believe the Yellow River will change its course." Zhang Yunqi smiled: "After all, this land must first be flooded to form an alluvial plain before it can grow into the pure liberalized market economy that foreign capital pursues."

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