LI Hailin: DDI’s Blue Ocean Strategy
At the time of the 15th anniversary of Boao, Guandian Real Estate had an exclusive interview with LI Hailin, the Chairman of DDI. Mr. LI, witnessing the evolution of China’s real estate industry from golden times to today’s silver times, has mentioned the several stages of the Blue Ocean Strategy that DDI must be faced with and he said that to provide all-round life services for as many as 100,000,000 middle-class people of China was the vision of DDI. Mr. LI Hailin also delivered an outline of the future expansion plan.
The following opinions are included in Guandian Real Estate’s report.
The fate was always mixed with occasionality. Shenzhen, in the 1980s, was not only the frontier for reform and opening up, but also a place where the younger generation set out for developing their career and creating wealth.
In 1989, LI Hailin, who was a civil servant at that time, was dispatched by chance by local government to take charge of Shenzhen Office. Affected by the freedom of the market economy, the civil servant, who originally planned to hold the “golden bowl”, made up his mind to abandoned politics for commerce and founded DDI.
“At the beginning of China’s reform and opening up, the richest stratum was not the middle-aged or the elderly but the young people because the young people had the courage to quit their jobs from schools or governmental authorities and went to business, that is to say, they involved themselves in the market.” In this context, LI Hailin aimed at such a group of young people and took the young people’s residence as one of its orientations.
At the early time of the foundation, DDI tried reconstruction of unfinished buildings and became the largest and the most widely distributed real estate developer of China. It was just based on the developing experience it accumulated at that time that DDI was capable of expanding its reconstruction business for unfinished buildings to the United States. In 2013, it purchased 3 properties from the bankrupted motor city Detroit. More than a year later, 2 buildings were successfully sold by DDI at a 45% premium.
“We are very familiar with the market. It has been 16 months since Detroit’s bankruptcy announcement. The relationship between “flour and bread” has been assessed. The return from lease or sales after reconstruction was not higher than selling it directly. After all, what we did was mainly investment but not speculation”.
LI Hailin pointed out that, in view of DDI’s own experience, the key for real estate enterprises to develop in overseas market was the localization of management and the biggest risk came from the market.
“Don’t think you get a great deal on the properties though they were indeed not expensive in foreign countries. More importantly, you have to sell them at the right time. Profit comes first.”
No matter what topics LI Hailin has mentioned, from the young people’s residence, reconstruction for unfinished buildings to overseas investment, what he has mentioned most frequently was the “Blue Ocean Strategy”. It was based on this strategy that DDI aimed at the middle class and launched the first family membership property of China – Shanghai Town & Country Community as real estate enterprises transformed themselves to life service suppliers successively.
It is learnt that the community committed itself to offering all-round family services for elite families and was especially concerned about children’s growth and the fine traditions of the families.
To provide all-round life services for as many as 100,000,000 middle-class people of China was the vision of DDI. Mr. LI Hailin also delivered an outline of the future expansion plan.
The records of the interview of Guandian Real Estate with Mr. LI Hailin, the Chairman of DDI, were given as follows:
Q: DDI started from the young people’s residence. Why did you choose to engage in the young people residence? What are features of DDI’s products?
LI Hailin: The young people’s residence is the general direction we have long insisted on and we are looking for such a blue ocean. At the end of 1980s and early 1990s, the reform and opening-up policy just got started in China. The richest stratum was not the middle-aged or the elderly but the young people because the young had the courage to abandon their jobs from schools or governmental authorities and went to business. In such a context, we positioned our business in the blue ocean project.
Q: Now, many real estate enterprises are seeking for transformation. DDI intends to develop itself into a life service supplier for middle-class people and in the year of 2014 DDI launched the STCC.
LI Hailin: We will continue adhering to the Blue Ocean Strategy because the golden times for the real estate industry have probably gone. Over the past several years, the real estate industry has hit a historical peak and this peak probably won’t take place again within 30 years.
Since many years ago DDI has considered transformation. The idea for transformation is also the Blue Ocean Strategy, i.e. how to seek for a different market among the fierce competition. Now, many real estate developers propose the slogan “serving the middle class”, but DDI chooses a type of business that has never been seen in China before.
In the future, 60% to 80% of the people may be middle-class. Compared with other real estate developers or service suppliers, DDI aims at a different middle class. DDI selects a very small market segment, that is to say, the transformation of lifestyle. Since the reform and opening-up, we’ve speeded up our pace in gearing to the international conventions and considered how to lead the 100,000,000 people’s lifestyle to the international level and how to bring the optimal, healthiest and most ecological international lifestyle to China. All of them are what we are trying to do.
What DDI has considered is how the next generation gears to the international conventions in 30 or even 40 years later. Shanghai is a special place, where there are 300,000 bi-racial families. Many of them are overseas elites. The club we’ve created is a platform, where we hope the overseas elites could be brought together with indigenous elites. Their children could grow up in such an international club and form a circle where they could grow up like a seed budding, growing, flowering and fruiting after cultivation in such an environment over a period of time.
Q: What’s your promotion plan for the club? Will you expand your club business to other first-tier cities of China?
LI Hailin: This is also our target. We hope we can offer such services for as many as 100,000,000 people of China. We may first position our business in the first-tier cities, and then in provincial capital cities and then relatively developed cities like Dalian and Suzhou. This is a progressive process.
Q: In additional to the club, DDI also set up Shanghai International M & A Exchange jointly with other investors in order to develop a new pattern for the financial industry. How about the progress of the platform at present?
LI Hailin: It is now still under preparation. There are no more details about it. It is actually a transformation of DDI from “digging for gold” to “supplying water”. During the expansion to overseas markets, we’ve experienced the ups and downs, accumulated lots of experience and learnt lots of lessons. We planned Shanghai International M & A Exchange in hope of assisting Chinese enterprises to go abroad and to avoid detours by learning our experience and lessons in investments.
(The above picture is Shanghai Town & Country Club)
Q: Now the real estate finance remains a hot industry in Shanghai. Besides international merge & acquisition, will you plan any other finance-related business activities?
LI Hailin: Now, the company still focuses on the construction of International M & A Exchange Platform. After the platform is completed, many business activities may come into being naturally.
Q: DDI has started exploring the overseas markets since a long time ago and has also purchased three properties from Detroit. But recently, it is said that some have been sold.
LI Hailin: DDI has got some profound experience in overseas expansion. Likewise, the overseas acquisition also adheres to the Blue Ocean Strategy. Presently, many Chinese real estate enterprises feel scared about Detroit because it is a bankrupted city. However, during 1997 to 2003 DDI successfully completed many reconstruction projects for unfinished buildings and we were the largest and most widely distributed enterprise of China that was engaged in this business, so we’ve accumulated lots of experience. At that time, many of our projects were not roofed at all. We did well in those complex and difficult projects, let alone the empty buildings left in Detroit due to the sharp drop in its population. They were not unfinished buildings, so it was simply a piece of cake for DDI.
Additionally, since the bankruptcy of Detroit, many former presidents of technology, IT or risk investment companies, were brought into government office and they made efforts in revitalizing the city, introducing lots of high-tech and finance enterprises and restoring the traditional automobile industry of the city at the same time. Lots of young people were attracted to Detroit. Presently, people need to wait for probably half a year if they want to buy the apartments located at the downtown of Detroit, so we made the investment there after we finished the market survey.
The next thing is the localization of management. The head of our Detroit office was the former president of Ford Car Club. He was very familiar with the market. The reason why we planned to sell the two buildings was that we were very familiar with the market. It has been 16 months since Detroit’s bankruptcy announcement. The relationship between “flour and bread” was much more familiar to us. For this reason, after calculation, we found that we could get a higher return if we sell the buildings now than leasing or selling them after reconstruction. After all, what we did was mainly investment but not speculation. When it was at a price worthy of investment, it was a right time for either reconstruction or selling them out. This was also the benefit we could get from localization because the head of local office knew the market best.
Q: At present, real estate enterprises “going abroad” has become a trend. In your opinion, what is the risk the real estate enterprises may be faced with when exploring the overseas markets?
LI Hailin: It’s still from the market. During the past 10 years from 2005 till now, to take the United States as an example, Chinese enterprises have purchased a total of 64 properties there. Few of the 64 properties have actually been reconstructed and finally achieved a good economic profit. DDI has successfully sold two buildings and made a profit of 171%. It was counted as a positive investment case for real estate enterprises. So I hope the real estate enterprises that go abroad could detect the opportunity. Don’t think you get a great deal in purchase of the properties though they were indeed not expensive in foreign countries. More importantly, you have to sell them at the right time. Profit comes first.
Q: DDI is a member of China Real Estate Crowd funding Union. What’s your original intention by joining the union?
LI Hailin: All real estate enterprises throughout the world are pursuing a type of asset-light operation model, for example, the reason why many American real estate companies could run for decades or even over 100 years is the asset-light operation model. It involved the cooperation of the industry leader Vanke with Tishman Speyer. Though leading the project, Tishman Speyer only accounted for 30% of the shares. Such a business model is also what all domestic real estate enterprises are learning. Crowdfunding is an attempt for asset-light strategy. I think it is also a choice of history and an inevitable choice during the industry transformation.
Q: Did you involve any DDI project in it?
LI Hailin: We are now conducting a survey with the secretariat that sponsored the union and may probably launch the project in the third quarter
Q: What do you think about the incomplete systems about crowdfunding?
LI Hailin: The so-called innovation is a breakthrough on the original basis. There won’t be any innovation if there isn’t any breakthrough, so “mass entrepreneurship and innovation” is advocated by our country. It requires us to break through the original unreasonable things, and we do it as required by the state for future development. The government must be the regulator and it’s bound to launch a series of rules if any issue occurs during the innovation process. I think the
Q: In your opinion, will real estate crowdfounding bring great changes to the whole industry?
LI Hailin: Crowdfunding is direct financing. In foreign mature market, direct financing may account for 70% to nearly 80% while bank financing accounts for 20% to 30%. However, in China, bank financing accounts for 97%. Therefore, direct financing and crowdfunding have an extensive development space in China and they are also a huge market where real estate giants carry out financial transition.
Q: “Internet Plus” is hot at present. What changes can “Internet Plus” bring to the real estate industry in your opinion?
LI Hailin: “Internet Plus” and Industry 4.0 are win-win cooperation. The reason why MIUI succeeds is because the MIUI model focuses on “MIUI fans”. Alibaba is also centered on services. The period when real estate companies focused only on sales of houses has gone. We have to center on clients’ demands. The products that clients demand are what we need to seize and create. Though the golden 30 years for real estate industry has passed, there is still a potential for future real estate market, but it is a personalized market. The so-called personalized market means that we need to satisfy clients’ demands. I believe this is the core of “Internet Plus”.
Q: Does real estate enterprises’ operation concept need to change with it?
LI Hailin: Absolutely. In the past, the real estate enterprises were centered on land purchase and costs, but now it’s different. Now, we center on market and clients. In the past, the real estate enterprises were called “landlord”. They purchased land in first-tier and second-tier cities and even in third-tier and fourth-tier cities. But now, everyone returns to the first-tier and second-tier cities. This is the so-called market demand.
Q: Will DDI try “Internet Plus” in the future?
LI Hailin: DDI owns a website “http://www.rryjw.com/”. In the future, STCC will also try to create an on-line club and intensify the operation on this.
Q: You once worked for government before you engaged yourself in the real estate industry. What drove you to abandon your original job and start a business?
LI Hailin: There were some accidental and inevitable factors. I was dispatched by accident to take charge of Shenzhen office in 1989. At that time Shenzhen was the most developed city and a leading city of China. The economic environment was one of the reasons why I ventured into business. My inner drive was another reason， because I hoped for more freedom. When working for government, you have to abide by its rules and regulations, but the market economy endowed me with a broader space and more freedom, with which I could give a full play to my ability.
Q: DDI started from Shenzhen. Why did you move from Shenzhen to Shanghai?
LI Hailin: Our development in Shenzhen was anything but smooth though it was a city that carried out the opening and reform policy best. In 1993, it suffered the pains arising from the state macro-control. Since DENG Xiaoping’s south China tour in 1992, Shenzhen has become a hot land. All hot money swarmed into Shenzhen. However, as required by Premier ZHU Rongji’s macro-control in 1993, all the money that had swarmed into Shenzhen must be reclaimed. So in the second half of 1993 and in 1994, Shenzhen experienced the pains. I’m from Jiangsu, so I returned to Nanjing in 1994. This is also a choice based on my conditions.
Q: Starting from the 1990s, as an entrepreneur witnessing the growth of the real estate industry, how do you see the development of the industry over the past decades? What inspiration did you get from it?
LI Hailin: China real estate industry didn’t strictly abide by market economy development law. Macro-control was made in nine years of ten and we called it “macro-control in nine years of ten”. This was an inevitable course in which China’s planned economy transited to market economy. Since the real estate is a non-financial industry, it has to serve the development of national economy. For that reason, today’s China real estate industry will adapt itself to market law and some aspects are also worthy of summarization. All in all, the real estate industry has made a great contribution to the advancement and development of the country. I believe that it will remain a major industry for Chinese economic development within 30 years and its development is bound to be under the macro-control of the country.
Q: Will there be any new pattern for the whole industry after a new round of shuffle?
LI Hailin: Like industrial manufacturing, those that are left must be the large-sized brand enterprises. Contract-type as well as small and medium sized real estate enterprises may also be left, but their size may be shrunk sharply.
Q: How does DDI maintain sustainable development?
LI Hailin: We, DDI, is a small and medium sized real estate enterprise and will position ourselves in a certain domain or in a specific product in an effort to make it the best and strongest of all. We will choose a product domain suitable for us, and we will also refine our product according to clients’ requirements, based on which, we will make our Blue Ocean Strategy much more refined and powerful.