Cross-industry expansion is nothing new for companies, but those that succeed are few and far between. For a mature enterprise, it must not only face fierce competition within its own industry but also divert energy to carve out a place in another field. This requires immense strength and courage. In the FMCG sector, several corporate giants have been enthusiastically pursuing cross-industry ventures. Although these ventures are full of unknowns and challenges, it is precisely because of such daring pioneers and pathfinders that we have been given vivid lessons on the road to cross-industry expansion. 1 Lee Kum Kee: Beyond Condiments, VR and Real Estate The Hong Kong-based Lee Kum Kee Group was founded in 1888, moved its headquarters to Macau in 1902, and relocated again in 1946, eventually settling in Hong Kong. It has a history of 129 years. Many people might be astonished to learn that a company has survived for over a century. It is indeed remarkable for a company to operate for over a hundred years without collapsing, and this is closely related to Lee Kum Kee's unique corporate culture. Typically, innovation in the condiment industry involves innovating and expanding existing product lines. Lee Kum Kee's first generation, Lee Kum Sheung, invented oyster sauce, and the company has since expanded to over 200 products, such as steamed fish soy sauce, which has been well-received in the market—something that didn't exist before. Now they are moving into health products. These are all innovations. But the entrepreneurial spirit pursued by Lee Kum Kee people goes far beyond that. In recent years, this 129-year-old "old child" has started to "stray from its主业." In 2015, it began to venture into smart wearables: First, let's imagine this scenario: "With a Lee Kum Kee smart bracelet on your left hand carrying Lee Kum Kee soy sauce, you take out your phone with your right hand, open the Lee Kum Kee HeHa app, check how many steps you've walked, how many calories you've burned, and whether your heart rate has gone abnormal because of buying soy sauce, then share on your social circle: 'Left hand, right hand, a Lee Kum Kee.'" In the wave of "Internet+", Lee Kum Kee did something unexpected—it established Shuang Le Health Technology Co., Ltd., selling apps, smart bracelets, and health monitoring devices, extending its health concept from food to wearables. Similar to most bracelets on the market, the Heha Dao features an LED display, connects to a smartphone via Bluetooth, and has functions like step counting, running, and sleep tracking. The only difference might be that the Heha Dao bracelet is generally more expensive than others—one Heha Dao bracelet costs about 799 yuan, equivalent to 133 bottles of 500ml Jin Zhen soy sauce. Most people have probably used step-counting apps, but the HeHa app not only calculates your steps and distance but also the calories burned while walking. Calculate the calories you've consumed, then look at the calories you've burned as shown on HeHa, and you'll likely stand up and walk a few more steps. It tracks your activity 24/7, never missing any of your walks, and accurately records your sleep time and the number of times you toss and turn, giving you insight into your sleep quality. It seems similar to many smart bracelets, but it has its unique features: when you reach 10,000 steps, the HeHa bracelet vibrates, giving you a sense of a high-five celebration. Of course, whether this bracelet can help us have a better experience when it comes to eating soy sauce is another matter. In 2010, it began to dabble in Hong Kong and mainland real estate: In July 2010, Lee Kum Kee purchased the V Point in Sheung Wan from Macquarie for over HK$4.3 billion, renaming it "Infinitus Plaza"; in 2015, Lee Kum Kee Health Products Group and a joint venture with Vanke Property (Hong Kong), Bayline Global Limited, acquired "Corporate Avenue 3" in Shanghai from Shui On Land for a total of RMB 5.7 billion (approximately HK$6.87 billion), which was renamed "Infinitus Tower" last year. In July 2017, it purchased the entire commercial building at 20 Fenchurch Street in London for approximately HK$12.8 billion, at a price of about HK$18,000 per square foot, making it the largest commercial property transaction in London's history. Lee Kum Kee's annual turnover exceeds RMB 10 billion, with products sold to over 80 countries and regions. At the current price of 18 yuan per bottle of oyster sauce, this property acquisition of HK$12.8 billion is equivalent to 700 million bottles of oyster sauce. Many family businesses cannot escape the curse of "wealth does not last three generations" because they follow the path of "start-up, maintenance, and decline": the first generation starts the business, the second generation maintains it, and the third generation loses it. Lee Kum Kee people advocate not just maintaining the business but always creating, with a mindset of continuous improvement and never setting a ceiling. Perhaps this is the secret to their steady progress in a turbulent, fast-changing era. 2 Wahaha: Baijiu, Milk Powder, Children's Clothing, Real Estate, Retail, Robots Most of Wahaha's cross-industry drive comes from the confidence and vision of its entrepreneur, Zong Qinghou. It is known that Wahaha has not gone public for many years, has a large scale in the industry, ample funds, and zero debt. The company's debt ratio is 0, so Mr. Zong never worries about money. This makes it easy to understand Wahaha's aggressive cross-industry investments since 2002. Now let's take a look at Wahaha's cross-industry journey over the years. In 2002, it established Wahaha Children's Clothing Co., Ltd.: Wahaha entered the children's clothing market during the blue ocean period when China's children's clothing industry was just beginning. However, at that time, Wahaha had a mistaken positioning in terms of brand and channels, leading to missed opportunities. The customer base was difficult to define, and the company found itself in an awkward position. In 2010, it entered the milk powder market: In May 2010, Wahaha announced a partnership with Royal FrieslandCampina of the Netherlands, which would produce "Edison Milk Powder" for Wahaha on an OEM basis. Although milk powder belongs to the food industry like Wahaha's beverage line, its consumer groups and distribution channels are completely different. The marketing system built for beverages was of no help for milk powder, giving Wahaha no advantage in cross-industry operations. Wahaha invested heavily in manpower, materials, and advertising for Edison milk powder, but as the saying goes, "different trades are separated as by mountains." Apart from a market share of less than 0.5% in AC Nielsen's rankings in 2010, Edison milk powder was absent from subsequent industry reports by multiple market research institutions. Later scandals, such as poor sales and forced quotas on internal staff, all indicated the unsatisfactory performance of Wahaha's cross-industry venture into milk powder. In 2012, it entered commercial real estate and retail: In 2012, Wahaha, together with some distributors from Zhejiang and Hunan provinces, established Wahaha Commercial Co., Ltd. through collective investment. The first phase investment was RMB 1.7 billion, mainly for the WAO Plaza, with the goal of listing within five years. However, reality was harsh: on June 5, 2014, media reported that the Hangzhou WAO Plaza was suffering heavy losses and could not sustain operations. Wahaha had owed rent for half a year and intended to terminate the contract and leave. In 2013, it invested RMB 15 billion to enter the baijiu industry: In November 2013, Wahaha held a press conference in Beijing to announce the launch of "Lingjiang Guojiu," a sauce-flavored baijiu produced in Maotai Town, Guizhou. At the same time, Zong Qinghou announced that Wahaha was officially entering the baijiu industry. Wahaha cooperated with Guizhou Maotai Town Jinjiang Distillery Co., Ltd. and more than ten local distilleries to launch this new product, hoping to leverage its capital and network advantages, use existing beverage channels, and also seek large distributors specializing in liquor to open up the baijiu market in the 100-400 yuan price range. However, nearly four years after its launch, sales do not seem to have made much progress. The product is rarely seen in the market, and transaction volumes on Taobao are low. Most news about it dates back to the press conference. Nevertheless, it is reported that the "Wahaha" brand baijiu, represented by Lingjiang Guojiu, has not disappeared from the market. Around sales, Wahaha's liquor division has initially formed a talent team, hiring experienced liquor distribution professionals as heads of sales. At the same time, the main products of Wahaha's liquor division have quietly shifted to strong-flavored baijiu, and market sales have achieved "some success." The launch of the strong-flavored Lingxiang Guojiu has achieved good market results, which is some consolation for Wahaha's cross-industry venture into liquor. In 2015, it explored equipment manufacturing: At Wahaha's Haining factory, two palletizing robots are in operation. Their red mechanical arms take boxes of Wahaha's "Nutrition Express" from the assembly line and neatly stack them, with positioning accuracy of plus or minus 0.05 mm. In the distance, a forklift arrives, lifts the pallet of 80 boxes of drinks, and places it in the warehouse. On average, a palletizing robot can stack 80 boxes in 2 minutes, and in an hour, it can stack about 2,000 boxes, while a human worker can handle 450 boxes per hour. In fact, Wahaha's involvement in robotics had been hinted at earlier. By 2015, it had completed the development of serial robots, parallel robots, and planar robots, and used them in its beverage production lines for product packing, palletizing, material feeding, and boxing. Zong Qinghou believes that Wahaha has a foundation in equipment manufacturing. Wahaha has two machinery factories that produce molds, spare parts for imported equipment, beverage machine parts, and robots. In a sense, Wahaha's carefully laid robot industry has indeed seized the opportunity. This is a trillion-yuan market, and whether it will bring new opportunities for Wahaha remains to be seen. In every diversification, Wahaha's strong distributor team is what Zong Qinghou considers a "magic weapon" for success. When talking about the children's clothing business, Zong said that they chose children's clothing because many distributors wanted Wahaha to do it, but the strong distributor team did not help Wahaha achieve its initial goals. The once-proud distributor system has actually become a weakness for Wahaha, with a lack of long-term products and excessive diversification. However, we should still give Zong credit for his courage; corporate innovation is not a bad thing, and we should encourage it. 3 Liangmianzhen: The Toothpaste Veteran Stumbles Due to Diversification In the 1980s, Liangmianzhen became famous across the country with the slogan "A good mouth of teeth, Liangmianzhen." For most people today, it is just a memory. From 1986 to 2001, Liangmianzhen ranked first in domestic production and sales for 15 consecutive years, reaching its peak sales in 2006. However, with the entry of many brands into the market, competition became increasingly fierce. Since 2007, Liangmianzhen's net profit excluding non-recurring items has been in a loss state. To resist market competition, Liangmianzhen at its peak began its transformation. In 2004, as the first listed company in the domestic daily chemical industry, Liangmianzhen raised a large amount of funds. Facing many competitors, Liangmianzhen attempted to change the competition of a single toothpaste product and chose capital operation as the breakthrough for its diversification strategy. Starting in 2004, it invested RMB 29.452 million in Yangzhou Tourism Supplies Co., Ltd., and subsequently invested in real estate, sugar manufacturing, daily chemicals, buses, pharmaceutical cultivation, sanitary products, papermaking, and import/export trade. In 2007, Liangmianzhen proposed the concept at an internal meeting: "Without product operations, the company is unstable; without capital operations, the company cannot become rich." Therefore, in addition to investing in industry, its capital operations were also eye-catching. That year, Liangmianzhen not only invested RMB 150 million in new stock subscriptions, securities, and funds, but also invested RMB 262 million in CITIC Securities' rights issue, acquiring 3.5 million new shares, invested RMB 200 million in Nanning City Commercial Bank, RMB 10 million in Liuzhou Bank, and RMB 200 million in Beibu Gulf Bank. At this point, Liangmianzhen had initially formed a diversified strategic pattern with capital operations, fine chemicals, large daily chemicals, and pharmaceutical health as the leading sectors, while also venturing into oral care products, washing products, tourism supplies, household paper products, pharmaceuticals, fine chemicals, pulp and papermaking, and real estate—eight major industries. However, diversification did not bring the expected success to Liangmianzhen; instead, it gradually abandoned its main business, reducing attention and investment in it. Starting from 2007, annual revenue dropped to RMB 178 million and continued to decline. By 2014, toothpaste sales revenue was RMB 106 million, only a quarter of its peak, accounting for less than 10% of Liangmianzhen's total revenue, far behind other toothpaste brands. Worse, among all of Liangmianzhen's investment projects, the paper products and papermaking sectors suffered severe losses, becoming a "drag." The paper products company only achieved a net profit of RMB 8,625.30 in its first year, and began to lose money in the second year. Data show that in 2015 and 2016, the paper products company's annual losses exceeded RMB 100 million; the papermaking company's losses for 2014, 2015, and 2016 were -RMB 90.59 million, -RMB 127.85 million, and -RMB 87 million, respectively, totaling over RMB 300 million in three years. On July 4, 2017, the 43rd meeting of the Sixth Board of Directors of Liuzhou Liangmianzhen Co., Ltd. approved the "Announcement on Providing Loans to Liuzhou Liangmianzhen Paper Products Co., Ltd." It stated that providing loans to the paper and paper products companies would help the paper sector carry out normal production and operations, preventing further expansion of losses. To date, Liangmianzhen has provided a total of RMB 937 million in loans to the two paper and papermaking companies, and almost all of these loans are overdue. Now, amid economic downturn and sluggish real estate and manufacturing, Liangmianzhen's diversification strategy has created a situation where its various businesses drag each other down. Liangmianzhen's deep predicament is not a one-day affair, and its road to recovery will not be a single battle. Currently, Liangmianzhen's market share is less than 1%, and its market activities and media communications are intermittent. The road back is still long. Is the old general still able to eat? We wish this national brand a speedy recovery from the mire and a return to glory. Summary: In a changing market economy, it is increasingly difficult for companies to stand alone. Cross-industry expansion is being practiced continuously across different industries. In the process of development, companies inevitably encounter irreversible changes. They must adapt to new situations and continue to innovate to change their current state. Although some cross-industry ventures are innovative and others are risky, I believe that in the end, facts will prove that cross-industry expansion can make a company shine by transforming its living space. These are the worst of times, and also the best of times. -END-