Generation next

“A wise prince should establish himself on that which is in his own control and not in the control of others”, advised the Florentine scholar Niccolò Machiavelli in his treatise on power, The Prince. It’s a lesson that the second generation of China’s business elite will recognise as they struggle to master the edifices that their parents have built.

If anything, there’s a general pessimism in China about the commercial capabilities of the next generation of tycoons, says China Weekly. It’s thought that their privileged upbringings may prevent the young princelings from following in their fathers’ footsteps.

Plus there is the motivation angle: “[Their] companies are often low-tech processing type businesses, which the affluent second generation aren’t interested in”, according to the newspaper. Back in July, a survey from the Beijing-based Legal Mirror suggested that 20% of the children of business founders didn’t want to take over their parents’ enterprise.

But at least a few of the young industrialists are out to prove the doubters wrong.

Chen Shan, the son of bowling baron Chen Rong, is one heir apparent who has had to display some of the cunning of a renaissance Italian to avoid becoming a sideshow.

At 52, the elder Chen is still very much in charge of Zhonglu Group, the company he founded in 1988. Over the last two decades, he has managed to amass a fortune estimated to be worth around $740 million (according to this year’s Hurun Rich List).

He got his start making textiles, but his real break came in the early nineties speculating on the Shanghai Stock Exchange (mostly from buying shares of companies before they listed). The proceeds were used to finance the group’s varied interests, of which sports equipment-maker Via Bowling is the most significant.

Zhonglu is still a relatively young empire, and like most businesses built by first generation entrepreneurs, it relies heavily on the charisma of its founder.

Chen Shan himself was too young to see the business grow out of infancy, as he was studying in the UK for most of his own formative years. That meant the 23 year-old had virtually no experience coming into the business.

It is a common problem, says China Weekly. “They [the business founders] are keen to send their children abroad to be educated, and don’t want them to experience the difficulties they went through,” argues the magazine, “[but] that difference in background often leads to an inability to communicate.”

Chen Shan’s father approached the problem in part by setting him up as CEO of one of the group’s smaller subsidiaries: Shanghai Forever Bicycle. The moribund, formerly state-owned bike-maker was acquired in 2001 for the relatively modest sum of close to $1 million (think of it as a rather expensive present – the tycoon’s equivalent of a Christmas train set, perhaps).

Still, putting Chen junior in charge of the ailing business may have limited the risk to the overall group, but it still left him with an extremely difficult task.

Returning to Shanghai in 2007, at the tender age of 20, he had to come to terms with a corporate culture that retained an SOE bias and venerated ‘grey hair’ experience.

Fortunately, there was a mentor. His father had left behind an experienced managing director to keep an eye on things. Chen Haiming (no relation) had spent the last 25 years at Shanghai Forever Bicycle, and winning his cooperation would be essential for Chen Shan to gain any real autonomy.

Not that the new organisation chart permeated through the company particularly quickly. “Department managers [still] reported directly to Chen Rong and even gave [their nominal boss, Chen Shan] the electricity bills to bring back home for Chen Rong to sign,” explains CBN Weekly.

Another challenge: there wasn’t much capital available for investment. When the business was purchased, it was $50 million in debt, and Chen Rong wasn’t willing to throw any more of the group’s cash into the low margin business.

Further, industry leaders Giant and Emmelle had long overtaken Shanghai Forever in terms of technology and quality. The company was stuck selling low-end bikes that retailed for around $45. Shanghai Forever did not look like it would be around for too much longer.

“Although I figured out what the problem was, I could not solve it,” says Chen Shan, of the company’s inability to invest in new technology, “Forever is like a very ill person: if you perform a surgery directly on it, that could accelerate his death.”

Before the 20 year-old’s arrival, industry veteran Chen Haiming had been trying to commission new designs (from the likes of Pininfarina, an Italian car design firm), as well as exploring the nascent bike-rental business.

But the new designs were dismissed as too expensive to be produced commercially and Chen Haiming didn’t feel he could justify moving into bike rental without turning around the company’s traditional business line first. “I had to consider whether to invest or earn profit first, and anyway, the size of investment needed was growing,” the executive explained.

But what was an impediment to the managing director, turned out to be an important opportunity for the budding CEO, who felt less encumbered by Shanghai Forever’s history.

He took a gamble and started a new subsidiary to rent bikes to the public in major urban areas. “This was a test to see if Forever could change from a pure production and marketing company into a partly service-oriented company,” he told CBN Weekly.

It also enabled Chen to build a separate power base. When he started Shanghai Public Bicycle last year he made sure to hire people born on or after 1984, so that he wouldn’t have to defer to anyone again because of their age.

He then had to go through the gruelling work of negotiating with local governments to get the permissions necessary to establish bike rental stalls.

The project turned out to be just what Chen needed. Its flagship operation in Shanghai’s Minhang District now rents 26,000 bikes to around 140,000 riders every week (at 60 cents an hour). “This [business] is becoming popular all over China,” boasts Chen, “but whoever is thinking about putting this kind of programme in place comes to Minhang District first to take a look.” He’s since moved into four other cities, and is currently in talks with the Beijing municipal government.

And Chen is the first to admit that the project’s main benefit isn’t its revenue. “That I earn Rmb1 million or lose Rmb1 million from the public cycling project is not the right way to evaluate it,” he told CBN Weekly, “the key is what I have learned.”

He might have added that its success gave him some much-needed stature in the company. That was crucial for what was to follow. Chen Haiming hadn’t given up trying to revitalise the company’s main operations, and was championing another redesign. A local design house had come up with a range of vintage-inspired ‘postman’s bikes’ that played on the company’s 1940s heritage. The new designs were simple and comfortable – and their bright colours appealed to a younger, higher-end demographic. But he still had to get past the company’s natural conservatism. The latest designs, to be marketed as Forever C, were meeting stiff resistance from a pessimistic sales force.

Enter Chen Shan who pushed for the new designs to get a trial run-out at local trade shows. He then started to promote them via an online store at the popular portal Taobao.com, a move that his older sales staff would not have considered.

Both approaches proved successful, bringing a new momentum to the redesign campaign. Despite their steeper price tag (the bikes sell for around $150) Chen managed to shift nearly 1,400 units in the first few days after the online store’s opening in September. While the young CEO cannot claim to have bested his father’s success just yet, the fledgling partnership with his older mentor might just have put on him on the path to greater success in future.

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