Who is to Blame ?   |  Back to Life   |  Change in operation strategy   |  Advantages   |  Rapid change in operational mechanisms

Enterprises, especially those losing money due to poor management and having subsidies from the state, will enter the market to fight to win, or be wiped out. It is literally "a matter of life or death." The Beijing Watch Factory provides such vibrant example.

Until the end of the 1970s, watches were a luxury for common Chinese people. At that time, the famous Shuangling brand watches, made by the Beijing Watch Factory, were selling like hot cakes. The large first-category factory, designated by the Ministry of Light Industry to produce watches, had on several occasions won awards from the State Economic Commission, the Ministry of Light Industry and the Beijing municipal government for its products.

Between 1958 and 1986, it turned over profits and taxes totalling 720 million yuan to the state, nine times the state's investment in the company during that period.

In the past few years, although the purchasing power of the people has increased by a large margin and watches have become much more common, the domestic watch industry has been subjected to a severe pounding. Its problems have been compounded by increasingly fierce competition on a market flooded with beautifully designed watches with changeable decorative parts imported or turned out Sino-foreign joint ventures. Markets of time-pieces in China are facing a serious crisis.

Since 1987 the industry has been in a depression, and the Beijing Watch Factory has been no exception, suffering losses because it has been unable to market its products As its 1990 deficit of 10 million yuan soared to 13 million yuan in 1991, the factory became one of Beijing's worst performing state-owned enterprises.

Who is to Blame ? In 1991, about one-third of the timepieces enterprises lost money, one-third broke even and the remainder made small profits. A total of 31.83 million watches were warehoused by industrial and commercial departments. This was due partly to irrational industrial structure and problems in industrial policies, and partly to problems in technology and sales methods. But the more important reason was the system itself, which has created a mode of production and people who implement that mode.

Currently, competition in the watch industry mainly revolves around external appearance. The Beijing Watch Factory now has no design department, although it used to have one. In the 1970s, the administrative department of the higher authorities in charge of the factory, heedless of the strong opposition of the factory, decided to separate the fact, body and assembly workshopsvfrom the factory itself so as to expand production and raise quality. But excessive investment in infrastructure and rapid expansion of the workforce made the cost of setting up the three branches much higher here than at other watchmakers, so prices also went up. In line with the "principle of protection," the Beijing Watch Factory had to buy parts from these branches. But the Beijing Watch Factory was unable lot change the backward state of the three branches, so within only a few years they had all been annexed by other enterprises. As a result, the Beijing Watch Factory could no longer produce faces and bodies. The steps taken by the higher authorities did not change the ultimate fate of the factory, but their failure did cause its vitality to sag.

In 1985, the Beijing Watch Factory dropped to its lowest point. It then had an overstock of 720,000 watches. Then the factory went through a period of rejuvenation. In 1987 it set up a specialized clock and watch company to tackle the key problem of designing watches which would change the decades-old outward appearance, so as to suit the demands of different consumers. The factory cooperated with a Hong Kong watch firm in developing over 100 fashionable products of more than 10 grades, priced from 45 to 1,800 yuan each. This effort, which tallies with market economic law, immediately yielded results. In 1989 this company netted profits of more than 9 million yuan. Thanks to its efforts, the Ministry of Light Industry earmarked 10 million yuan for the construction of the face and body production base for which the Beijing Watch Factory had long yearned. However, the upper administration of the specialized company interfered, and the approval had to be rescinded. So the company still acted as the factory's sales agent, promoting its product sales only passively. The factory returned to its old management method based mainly on production and holding a dominant position, and continued to lose money.

Although the Beijing Watch Factory was beset with difficulties, none of the Ministry of Light Industry, the Beijing municipal government department concerned, and all the employees of the Beijing Watch Factory admitted that the factory, which had 90 million yuan worth of fixed assets, several hundred sets of imported equipment and some 100 technical personnel, could not do well. In 1992 the manager of a famous French timepiece maker visited the factory. Summing up his deepest impressions of the factory he said, "I did not expect to see so advanced equipment in the Beijing Watch Factory, and I did not expect is performance to be so poor."

Back to Life: The Beijing Watch Factory invited the French manager in the hope that he would participate in a joint venture, but it did not succeed. What is more, public bidding, contracted undertakings, cooperative efforts involving domestic and overseas markets failed on several occasions.

Along with the promulgation and implementation of the Regulations on the Transformation of Management Mechanisms of State-Owned Enterprises in 1992, the transformation of management mechanisms of large and medium-sized state-owned enterprises become the focus of economic system reform. The main goal of the regulations is to turn decision-making powers over to enterprises, enabling them to become independent legal entities which assume sole responsibility for profits and losses.

In April 1992 Liu Jihu assumed office as director of the Beijing Watch Factory. Liu was also manger of the specialized company during its profit-making years and has several years of sales experience. Immediately after taking up the post, he enacted bold and resolute reforms which radically changed the factory, bringing production in line with market demands. Thus, the factory established a strong specialized company in which the market guided production. In only a few months, a series of astonishing changes had taken place.

Change in operation strategy : The Beijing Watch Factory has produced watchworks for many years, and its annual output is 3 million watchworks. In recent years, the works have sold sluggishly on domestic markets. As prices have dropped on world markets, the factory had to lose 12 yuan for watch core it exports In 1991 it exported 800,000 cores and thus lost more than 10 million yuan. Complete watches are selling briskly on domestic markets, with more than 40 million being sold in 1991. But even though it is a large state enterprise, the Beijing Watch Factory sold only 200,000 watches, 0.5 percent of the total. What is more, most of its watches were assembled by other factories or rural enterprises. Quality was poor, and the rate of breakdown was amazingly high. Then the factory made sales the most important issue and adopted an operational strategy which was more market oriented. Since the factory was losing money on the export of cores dwindled from 800,000 in 1990 to 670,000 in 1991, and the output of complete watches rose from 200,000 to 510,000. This adjustment helped the factory eliminate 4 million yuan in losses.

Rapid change in operational mechanisms.The market-oriented specialised company had to be sensitive to market trends, observant and adaptable. The company's sections and administrative offices were merged and a marketing department was set up especially for "diagnosing the market" and insuring that proper decisions were made. Now, the sales and marketing departments have become the brain center, managing production, opening up markets in other parts of the country and expanding sales. The semi-paralyzed assembly workshop was revamped with new equipment and personnel, upping monthly production capacity to 60,000 watches. Since last May, the factory has assembled all its watches itself.

To improve sales, the factory has adopted some measures it could not do so in the past. For instance, it implemented the total sales responsibility system and changed the former practice of giving everybody the same wages and bonuses regardless of sales volume. Wages and bonuses are now set regionally according to sales. This practice has fired enthusiasm by increasing the pressure on salespersons, so sales are up. The factory has also widened sales channels by renting counters at bazaars which have an annual business volume of more than 150 million yuan, and it has forged ties with large markets. The factory not only advertises its products directly to the public, it analyses market trends and offers timely information to its sales agents. To accelerate the recovery of funds, they have begun offering profits and rewards as incentives, reducing the recovery period from two and a half years to 10 months. This practice alone can save 2 million yuan a year in interest payments. Since the faces and bodies cannot be produced by the factory at the moment, it exchanges its quality watch works for these parts in a variety of styles, then assembles them into a complete product.

Thanks to these measures and practices, the factory is seeing its sales increase, and the rate of recovery of funds has risen markedly. The funds recovered last June alone were equivalent to the total for the past five months - 6 million yuan. Workers' incomes have also gone up, with wages being raised two grades last year.

Advantages. The Beijing Watch Factory has introduced 600 sets of advanced watch-making equipment from Switzerland. Its technical force and the quality of its staff and workers are top-ranking, and its products have received numerous awards. It is using the specialized company to help it concentrate more on marketing. The factory has developed more saleable products and diversified production, making it vigorous and more adaptable. It has uses its precision instruments and the technological prowess of its staff to develop a pulse monitor to be worn on the wrist, which won a gold prize at a national exhibition of new technology and products. Although the monitor, which was recently patented, is still in development, orders are already flowing in.

An electric brush developed by the Beijing Watch Factory is enjoying brisk sales. The 5,000 brushes it produced last year sold so well that production this year is set at over 100,000.

The factory's Clock and Watch Research Institute is the largest scientific research institute in China. In the past, its production department commanded the institute, development of a new product often took two years to go from design to the output of finished products. Now the institute is run by the specialized company, which has changed its structure, added staff and instituted a bonus system linked to sales volume.

These moves have turned what was once a department of secondary importance into once which plays a leading role in the company. One of its many profitable and value-added products is a speedometer for electric locomotives, a product China has long imported from Switzerland. The two prototypes developed by the watch factory have been tried out on Chinese trains with satisfactory results. The ministry of Railways has set up a department in the factory's Clock and Watch Institute to develop other domestic substitutes for imports. Since last May the factory has developed more than 100 new watches, and its Shuangling brand watch now has a completely new look. These watches are so popular that production cannot keep up with demand.

The Beijing Watch Factory lost 13 million yuan in 1991. But since management was restructured and the enterprise was given the right to make its own decisions, its performance has taken turn for the better. Production has been on the increase each month. Last year the factory produced 1 million watches and watchworks and sold 1.18 million watches for a total of 31.2 million yuan. The cost of production was down 7.5 percent and losses were reduced by 7.07 million yuan. The cost of production was down 7.5 percent and losses were reduced by 7.07 million yuan. Its sleek Shuangling wristwatch and the DB3130 quartz watch both won best-product awards from the State Clock and Watch Quality Control and Monitoring Center.

Director Liu said that no matter whether China practices a planned or market economy, a market for his products will always exist. "Since economic development has put the country on the market economy path, we should act according to market economy rules, finding niches to fill in the marketplace," Liu added. "With the capacity to produce 3 million watches a year, we are currently putting every effort into doubling our annual output to 2 million watches and turning the company into a profitable Chinese Enterprise."