Newsmaker: Xu Zhihua, CEO of Peak
Cheung Kong EMBA student Xu Zhihua is CEO of Peak, one of China's leading sportswear companies. Founded by his father, the company is an NBA sponsor and sometimes thought of as China's Nike. He spoke with Cheung Kong Magazine.
Peak most recently made the news in November with its announcement it had signed endorsement contracts with Houston Rockets forward Carl Landry and the Minnesota Timberwolves' Kevin Love. (Landry is filling the void left at the Rockets by the injury of Chinese NBA star Yao Ming.)
The first Chinese sportswear maker to show its commercials at NBA games courtside after signing with the Rockets in 2005, Peak now sponsors nine NBA players, including Rockets forward Shane Battier.
It is one of a number of Chinese shoemakers with operations in Jinjiang City, Fujian province, a hive of industrial activity famous for its high concentration of footwear and clothing manufacturers.
 Peak went public in September, raising US$221 million with its listing on the Hong Kong bourse.
Cheung Kong recently caught up with Xu Zhihua to hear his story.
Why did you decide to join the family business?
Xu: Well, I received an offer from a large telecommunications company when I graduated. My major had been computer science, and I had been president of the student union. The salary they offered me was comparatively high, 100,000 RMB per year. But after discussion with my father, I realized that Peak needed me to understand the fast changing market. And I quickly made the decision to join Peak. Still, I don't think I joined the company because of my father's request; it was rather a sense of personal duty that pushed me to make the decision.
How long did it take you to learn the ropes and integrate yourself into the company after you joined?
Xu: Actually I'm still learning--and I keep learning everyday. I was an assistant to the CEO when I joined Peak, but to be frank I was in fact a sales person who coordinated with and visited many local sales agents. At that time, the company was adjusting its strategy.
How did Peak adjust strategies to respond to new challenges?
Xu: One key factor enabling us to adjust our strategy was Peak's brand recognition. From a consumers' perspective, Peak's branding doesn't change too much, even as the market we face changes. We have always been a sports shoemaker specializing in the manufacturer of basketball shoes. That is our foundation.
In 2001, I joined the company after graduating from university. When I visited our local sales agents, I found that they almost all loved playing basketball. They, too, were our consumers. They have a very thorough understanding of our brand. I thought that this was necessary for Peak to do well.
The company gained new blood when my younger brother and I joined. We changed sales agents, extended out products line, strengthened our designing capability, and improved our execution ability. All these changes helped Peak. And I think consistent branding is essential. Without it we would not have been able to succeed, no matter how capable the team is.
What was your understanding of the business when you joined?
Xu: My understanding came from the environment I lived and grew up: each summer I either worked in our franchised stores or in our factory. My father took my brother and me when he met with sales agents, even though we could not actually help him with anything. My roommates and I set up a shop at our dorm when I was at university with a total investment of 8,000 RMB, or 1,000 RMB each. Still, this did not give me a thorough understanding of the business, but I was getting to know some things.
Why did Peak lead in brand building but lag in coming to the market with an IPO?
Xu: Although our brand does have a long history – it was the first Jinjiang shoe manufacturer with its own brand name – our company is not that big. And business was sluggish for a while. We restructured, and then we realized the importance of the capital market. The company is now listed in Hong Kong.
.jpg) You said business was sluggish for a while. When was that?
Xu: From 1997 to 2001. They were tough times. Competitors snuck up on us and competition intensified. So we decided to review our strategy. I am proud to say we could recover and expand our business again. Very few companies in China can make it. A person who falls not only has to pick themselves up, they have to run fast to catch up with the other runners.
What was the reason for those tough times?
Xu: The main reason was that the structure of sales in China was changing. We're one of the pioneers in the industry as we own our own brand. But owning a brand in 1991 was not all a good thing. Think about China's business environment in 1991. The country's economy was still a planned one in nature, and we could only choose state-owned shopping malls as a place to sell our products. After 1997, especially in the wake of the Asian Financial Crisis, a great change took place in domestic market: state-owned shopping malls started to disappear as private players began to play a bigger role. It was a market in flux. It was a big challenge for us, but not for our competitors who entered the market later than us. That transition was a test for us, even though we were the market leader at that time.
What was Peak's sales revenue then, in 1997?
Xu: About 100 million RMB, which wasn't bad for the late 1990s.
What was revenue in 2001?
Xu: Still 100 million RMB. Business was stagnant. There were a lot of problems. Our competitors like Anta, on the other hand, were growing very fast. My younger brother also joined Peak in 2001, half year before I did. He didn't finish university.
What changes did you and your brother bring to Peak as part of the generational handover?
Xu: First of all we implemented things, and the company improved its ability to execute plans after we joined. Ideas adopted by the board of directors were executed. That was a big change. Peak was not a company with a scarcity of good ideas. My father himself is both aspiring and entrepreneurial. He was adamant the force holding back the company was poor execution of plans. People were reluctant to change sales agents with whom they had worked with for years. They didn't want to offend these agents.
The first thing I did was to go into the market and learn from it. Then I started looking for new sales agents. I learned things during this time, and what I learned gave me the confidence to plough on with reforms. When I returned to the headquarters in 2004, the first thing I did was to reform the sales strategy. Half of our sales agents were gone within three years, though I faced great resistance, even from my father. There were definitely risks in making such changes, since no one can know for sure what they are doing is right. But I was certain that the old sales agents were not right for us, and they would have ruined our business if we didn't change. Fortunately my decision was vindicated.
How has financing been for the company? Why did you decide to raise capital?
Xu: Capital is especially important for private companies. We experienced three crises since we started the business. The first one happened in 1992, when all private enterprises faced the question of transforming themselves into collective companies or not. The second came after the Asian Financial Crisis, when most manufacturing companies started shifting to other businesses. Then there was last year's financial crisis.
Peak has faced capital issues since its establishment. When my father founded Peak in 1992, he asked a bank for a 1 million RMB loan. They asked him how he would use the money and he told them he needed it to pay for advertising. Can you imagine what the bank said?
How did the financial crisis hit Peak?
Xu: Two new manufacturing plants started operation in 2008, and we had been continuing to grow ourselves. Previously we had only two ways to raise capital: bank loans and private loans. But now there are several more, through private equity and bond issuance, for example.
Peak's shares fell on their debut, surprising a lot people. Why did they fall?
Xu: That was due to the market's overall performance. It had nothing to do with our business. We know our business well. When we publish our revenue report next quarter, the market will respond positively. It takes time for investors to get to know a newly listed company. I know that investors who target returns over the long term will add to their investment when the share price falls. They have confidence in Peak.
The price to earnings ratio of sportswear manufacturers in the mainland is about the Hong Kong's market average, or even lower in some cases. It shouldn't be that way, because, obviously, the mainland market still has a lot of room to grow, and our business is still in its infancy. That is why Sequoia Capital invested in us, even though they usually invest in fast-growing technology companies. And, apart from making shoes and clothes, Peak is also a company in China's fast growing sports industry. Some people have forgotten this.
Interview by Cheung Kong's Li Xiang. Translation by Zhang Liang.
Cheung Kong EMBA student Xu Zhihua is CEO of Peak, one of China's leading sportswear companies. Founded by his father, the company is an NBA sponsor and sometimes thought of as China's Nike. He spoke with Cheung Kong Magazine.
Peak most recently made the news in November with its announcement it had signed endorsement contracts with Houston Rockets forward Carl Landry and the Minnesota Timberwolves' Kevin Love. (Landry is filling the void left at the Rockets by the injury of Chinese NBA star Yao Ming.)
The first Chinese sportswear maker to show its commercials at NBA games courtside after signing with the Rockets in 2005, Peak now sponsors nine NBA players, including Rockets forward Shane Battier.
It is one of a number of Chinese shoemakers with operations in Jinjiang City, Fujian province, a hive of industrial activity famous for its high concentration of footwear and clothing manufacturers.
Peak went public in September, raising US$221 million with its listing on the Hong Kong bourse.
Cheung Kong recently caught up with Xu Zhihua to hear his story.
Why did you decide to join the family business?
Xu: Well, I received an offer from a large telecommunications company when I graduated. My major had been computer science, and I had been president of the student union. The salary they offered me was comparatively high, 100,000 RMB per year. But after discussion with my father, I realized that Peak needed me to understand the fast changing market. And I quickly made the decision to join Peak. Still, I don't think I joined the company because of my father's request; it was rather a sense of personal duty that pushed me to make the decision.
How long did it take you to learn the ropes and integrate yourself into the company after you joined?
Xu: Actually I'm still learning--and I keep learning everyday. I was an assistant to the CEO when I joined Peak, but to be frank I was in fact a sales person who coordinated with and visited many local sales agents. At that time, the company was adjusting its strategy.
How did Peak adjust strategies to respond to new challenges?
Xu: One key factor enabling us to adjust our strategy was Peak's brand recognition. From a consumers' perspective, Peak's branding doesn't change too much, even as the market we face changes. We have always been a sports shoemaker specializing in the manufacturer of basketball shoes. That is our foundation.
In 2001, I joined the company after graduating from university. When I visited our local sales agents, I found that they almost all loved playing basketball. They, too, were our consumers. They have a very thorough understanding of our brand. I thought that this was necessary for Peak to do well.
The company gained new blood when my younger brother and I joined. We changed sales agents, extended out products line, strengthened our designing capability, and improved our execution ability. All these changes helped Peak. And I think consistent branding is essential. Without it we would not have been able to succeed, no matter how capable the team is.
What was your understanding of the business when you joined?
Xu: My understanding came from the environment I lived and grew up: each summer I either worked in our franchised stores or in our factory. My father took my brother and me when he met with sales agents, even though we could not actually help him with anything. My roommates and I set up a shop at our dorm when I was at university with a total investment of 8,000 RMB, or 1,000 RMB each. Still, this did not give me a thorough understanding of the business, but I was getting to know some things.
Why did Peak lead in brand building but lag in coming to the market with an IPO?
Xu: Although our brand does have a long history – it was the first Jinjiang shoe manufacturer with its own brand name – our company is not that big. And business was sluggish for a while. We restructured, and then we realized the importance of the capital market. The company is now listed in Hong Kong.
You said business was sluggish for a while. When was that?
Xu: From 1997 to 2001. They were tough times. Competitors snuck up on us and competition intensified. So we decided to review our strategy. I am proud to say we could recover and expand our business again. Very few companies in China can make it. A person who falls not only has to pick themselves up, they have to run fast to catch up with the other runners.
What was the reason for those tough times?
Xu: The main reason was that the structure of sales in China was changing. We're one of the pioneers in the industry as we own our own brand. But owning a brand in 1991 was not all a good thing. Think about China's business environment in 1991. The country's economy was still a planned one in nature, and we could only choose state-owned shopping malls as a place to sell our products. After 1997, especially in the wake of the Asian Financial Crisis, a great change took place in domestic market: state-owned shopping malls started to disappear as private players began to play a bigger role. It was a market in flux. It was a big challenge for us, but not for our competitors who entered the market later than us. That transition was a test for us, even though we were the market leader at that time.
What was Peak's sales revenue then, in 1997?
Xu: About 100 million RMB, which wasn't bad for the late 1990s.
What was revenue in 2001?
Xu: Still 100 million RMB. Business was stagnant. There were a lot of problems. Our competitors like Anta, on the other hand, were growing very fast. My younger brother also joined Peak in 2001, half year before I did. He didn't finish university.
What changes did you and your brother bring to Peak as part of the generational handover?
Xu: First of all we implemented things, and the company improved its ability to execute plans after we joined. Ideas adopted by the board of directors were executed. That was a big change. Peak was not a company with a scarcity of good ideas. My father himself is both aspiring and entrepreneurial. He was adamant the force holding back the company was poor execution of plans. People were reluctant to change sales agents with whom they had worked with for years. They didn't want to offend these agents.
The first thing I did was to go into the market and learn from it. Then I started looking for new sales agents. I learned things during this time, and what I learned gave me the confidence to plough on with reforms. When I returned to the headquarters in 2004, the first thing I did was to reform the sales strategy. Half of our sales agents were gone within three years, though I faced great resistance, even from my father. There were definitely risks in making such changes, since no one can know for sure what they are doing is right. But I was certain that the old sales agents were not right for us, and they would have ruined our business if we didn't change. Fortunately my decision was vindicated.
How has financing been for the company? Why did you decide to raise capital?
Xu: Capital is especially important for private companies. We experienced three crises since we started the business. The first one happened in 1992, when all private enterprises faced the question of transforming themselves into collective companies or not. The second came after the Asian Financial Crisis, when most manufacturing companies started shifting to other businesses. Then there was last year's financial crisis.
Peak has faced capital issues since its establishment. When my father founded Peak in 1992, he asked a bank for a 1 million RMB loan. They asked him how he would use the money and he told them he needed it to pay for advertising. Can you imagine what the bank said?
How did the financial crisis hit Peak?
Xu: Two new manufacturing plants started operation in 2008, and we had been continuing to grow ourselves. Previously we had only two ways to raise capital: bank loans and private loans. But now there are several more, through private equity and bond issuance, for example.
Peak's shares fell on their debut, surprising a lot people. Why did they fall?
Xu: That was due to the market's overall performance. It had nothing to do with our business. We know our business well. When we publish our revenue report next quarter, the market will respond positively. It takes time for investors to get to know a newly listed company. I know that investors who target returns over the long term will add to their investment when the share price falls. They have confidence in Peak.
The price to earnings ratio of sportswear manufacturers in the mainland is about the Hong Kong's market average, or even lower in some cases. It shouldn't be that way, because, obviously, the mainland market still has a lot of room to grow, and our business is still in its infancy. That is why Sequoia Capital invested in us, even though they usually invest in fast-growing technology companies. And, apart from making shoes and clothes, Peak is also a company in China's fast growing sports industry. Some people have forgotten this.
Interview by Cheung Kong's Li Xiang. Translation by Zhang Liang.
Newsmaker: Xu Zhihua, CEO of Peak
Cheung Kong EMBA student Xu Zhihua is CEO of Peak, one of China's leading sportswear companies. Founded by his father, the company is an NBA sponsor and sometimes thought of as China's Nike. He spoke with Cheung Kong Magazine.
Peak most recently made the news in November with its announcement it had signed endorsement contracts with Houston Rockets forward Carl Landry and the Minnesota Timberwolves' Kevin Love. (Landry is filling the void left at the Rockets by the injury of Chinese NBA star Yao Ming.)
The first Chinese sportswear maker to show its commercials at NBA games courtside after signing with the Rockets in 2005, Peak now sponsors nine NBA players, including Rockets forward Shane Battier.
It is one of a number of Chinese shoemakers with operations in Jinjiang City, Fujian province, a hive of industrial activity famous for its high concentration of footwear and clothing manufacturers.
Peak went public in September, raising US$221 million with its listing on the Hong Kong bourse.
Cheung Kong recently caught up with Xu Zhihua to hear his story.
Why did you decide to join the family business?
Xu: Well, I received an offer from a large telecommunications company when I graduated. My major had been computer science, and I had been president of the student union. The salary they offered me was comparatively high, 100,000 RMB per year. But after discussion with my father, I realized that Peak needed me to understand the fast changing market. And I quickly made the decision to join Peak. Still, I don't think I joined the company because of my father's request; it was rather a sense of personal duty that pushed me to make the decision.
How long did it take you to learn the ropes and integrate yourself into the company after you joined?
Xu: Actually I'm still learning--and I keep learning everyday. I was an assistant to the CEO when I joined Peak, but to be frank I was in fact a sales person who coordinated with and visited many local sales agents. At that time, the company was adjusting its strategy.
How did Peak adjust strategies to respond to new challenges?
Xu: One key factor enabling us to adjust our strategy was Peak's brand recognition. From a consumers' perspective, Peak's branding doesn't change too much, even as the market we face changes. We have always been a sports shoemaker specializing in the manufacturer of basketball shoes. That is our foundation.
In 2001, I joined the company after graduating from university. When I visited our local sales agents, I found that they almost all loved playing basketball. They, too, were our consumers. They have a very thorough understanding of our brand. I thought that this was necessary for Peak to do well.
The company gained new blood when my younger brother and I joined. We changed sales agents, extended out products line, strengthened our designing capability, and improved our execution ability. All these changes helped Peak. And I think consistent branding is essential. Without it we would not have been able to succeed, no matter how capable the team is.
What was your understanding of the business when you joined?
Xu: My understanding came from the environment I lived and grew up: each summer I either worked in our franchised stores or in our factory. My father took my brother and me when he met with sales agents, even though we could not actually help him with anything. My roommates and I set up a shop at our dorm when I was at university with a total investment of 8,000 RMB, or 1,000 RMB each. Still, this did not give me a thorough understanding of the business, but I was getting to know some things.
Why did Peak lead in brand building but lag in coming to the market with an IPO?
Xu: Although our brand does have a long history – it was the first Jinjiang shoe manufacturer with its own brand name – our company is not that big. And business was sluggish for a while. We restructured, and then we realized the importance of the capital market. The company is now listed in Hong Kong.
You said business was sluggish for a while. When was that?
Xu: From 1997 to 2001. They were tough times. Competitors snuck up on us and competition intensified. So we decided to review our strategy. I am proud to say we could recover and expand our business again. Very few companies in China can make it. A person who falls not only has to pick themselves up, they have to run fast to catch up with the other runners.
What was the reason for those tough times?
Xu: The main reason was that the structure of sales in China was changing. We're one of the pioneers in the industry as we own our own brand. But owning a brand in 1991 was not all a good thing. Think about China's business environment in 1991. The country's economy was still a planned one in nature, and we could only choose state-owned shopping malls as a place to sell our products. After 1997, especially in the wake of the Asian Financial Crisis, a great change took place in domestic market: state-owned shopping malls started to disappear as private players began to play a bigger role. It was a market in flux. It was a big challenge for us, but not for our competitors who entered the market later than us. That transition was a test for us, even though we were the market leader at that time.
What was Peak's sales revenue then, in 1997?
Xu: About 100 million RMB, which wasn't bad for the late 1990s.
What was revenue in 2001?
Xu: Still 100 million RMB. Business was stagnant. There were a lot of problems. Our competitors like Anta, on the other hand, were growing very fast. My younger brother also joined Peak in 2001, half year before I did. He didn't finish university.
What changes did you and your brother bring to Peak as part of the generational handover?
Xu: First of all we implemented things, and the company improved its ability to execute plans after we joined. Ideas adopted by the board of directors were executed. That was a big change. Peak was not a company with a scarcity of good ideas. My father himself is both aspiring and entrepreneurial. He was adamant the force holding back the company was poor execution of plans. People were reluctant to change sales agents with whom they had worked with for years. They didn't want to offend these agents.
The first thing I did was to go into the market and learn from it. Then I started looking for new sales agents. I learned things during this time, and what I learned gave me the confidence to plough on with reforms. When I returned to the headquarters in 2004, the first thing I did was to reform the sales strategy. Half of our sales agents were gone within three years, though I faced great resistance, even from my father. There were definitely risks in making such changes, since no one can know for sure what they are doing is right. But I was certain that the old sales agents were not right for us, and they would have ruined our business if we didn't change. Fortunately my decision was vindicated.
How has financing been for the company? Why did you decide to raise capital?
Xu: Capital is especially important for private companies. We experienced three crises since we started the business. The first one happened in 1992, when all private enterprises faced the question of transforming themselves into collective companies or not. The second came after the Asian Financial Crisis, when most manufacturing companies started shifting to other businesses. Then there was last year's financial crisis.
Peak has faced capital issues since its establishment. When my father founded Peak in 1992, he asked a bank for a 1 million RMB loan. They asked him how he would use the money and he told them he needed it to pay for advertising. Can you imagine what the bank said?
How did the financial crisis hit Peak?
Xu: Two new manufacturing plants started operation in 2008, and we had been continuing to grow ourselves. Previously we had only two ways to raise capital: bank loans and private loans. But now there are several more, through private equity and bond issuance, for example.
Peak's shares fell on their debut, surprising a lot people. Why did they fall?
Xu: That was due to the market's overall performance. It had nothing to do with our business. We know our business well. When we publish our revenue report next quarter, the market will respond positively. It takes time for investors to get to know a newly listed company. I know that investors who target returns over the long term will add to their investment when the share price falls. They have confidence in Peak.
The price to earnings ratio of sportswear manufacturers in the mainland is about the Hong Kong's market average, or even lower in some cases. It shouldn't be that way, because, obviously, the mainland market still has a lot of room to grow, and our business is still in its infancy. That is why Sequoia Capital invested in us, even though they usually invest in fast-growing technology companies. And, apart from making shoes and clothes, Peak is also a company in China's fast growing sports industry. Some people have forgotten this.
Interview by Cheung Kong's Li Xiang. Translation by Zhang Liang.
Newsmaker: Xu Zhihua, CEO of Peak
Cheung Kong EMBA student Xu Zhihua is CEO of Peak, one of China's leading sportswear companies. Founded by his father, the company is an NBA sponsor and sometimes thought of as China's Nike. He spoke with Cheung Kong Magazine.
Peak most recently made the news in November with its announcement it had signed endorsement contracts with Houston Rockets forward Carl Landry and the Minnesota Timberwolves' Kevin Love. (Landry is filling the void left at the Rockets by the injury of Chinese NBA star Yao Ming.)
The first Chinese sportswear maker to show its commercials at NBA games courtside after signing with the Rockets in 2005, Peak now sponsors nine NBA players, including Rockets forward Shane Battier.
It is one of a number of Chinese shoemakers with operations in Jinjiang City, Fujian province, a hive of industrial activity famous for its high concentration of footwear and clothing manufacturers.
Peak went public in September, raising US$221 million with its listing on the Hong Kong bourse.
Cheung Kong recently caught up with Xu Zhihua to hear his story.
Why did you decide to join the family business?
Xu: Well, I received an offer from a large telecommunications company when I graduated. My major had been computer science, and I had been president of the student union. The salary they offered me was comparatively high, 100,000 RMB per year. But after discussion with my father, I realized that Peak needed me to understand the fast changing market. And I quickly made the decision to join Peak. Still, I don't think I joined the company because of my father's request; it was rather a sense of personal duty that pushed me to make the decision.
How long did it take you to learn the ropes and integrate yourself into the company after you joined?
Xu: Actually I'm still learning--and I keep learning everyday. I was an assistant to the CEO when I joined Peak, but to be frank I was in fact a sales person who coordinated with and visited many local sales agents. At that time, the company was adjusting its strategy.
How did Peak adjust strategies to respond to new challenges?
Xu: One key factor enabling us to adjust our strategy was Peak's brand recognition. From a consumers' perspective, Peak's branding doesn't change too much, even as the market we face changes. We have always been a sports shoemaker specializing in the manufacturer of basketball shoes. That is our foundation.
In 2001, I joined the company after graduating from university. When I visited our local sales agents, I found that they almost all loved playing basketball. They, too, were our consumers. They have a very thorough understanding of our brand. I thought that this was necessary for Peak to do well.
The company gained new blood when my younger brother and I joined. We changed sales agents, extended out products line, strengthened our designing capability, and improved our execution ability. All these changes helped Peak. And I think consistent branding is essential. Without it we would not have been able to succeed, no matter how capable the team is.
What was your understanding of the business when you joined?
Xu: My understanding came from the environment I lived and grew up: each summer I either worked in our franchised stores or in our factory. My father took my brother and me when he met with sales agents, even though we could not actually help him with anything. My roommates and I set up a shop at our dorm when I was at university with a total investment of 8,000 RMB, or 1,000 RMB each. Still, this did not give me a thorough understanding of the business, but I was getting to know some things.
Why did Peak lead in brand building but lag in coming to the market with an IPO?
Xu: Although our brand does have a long history – it was the first Jinjiang shoe manufacturer with its own brand name – our company is not that big. And business was sluggish for a while. We restructured, and then we realized the importance of the capital market. The company is now listed in Hong Kong.
You said business was sluggish for a while. When was that?
Xu: From 1997 to 2001. They were tough times. Competitors snuck up on us and competition intensified. So we decided to review our strategy. I am proud to say we could recover and expand our business again. Very few companies in China can make it. A person who falls not only has to pick themselves up, they have to run fast to catch up with the other runners.
What was the reason for those tough times?
Xu: The main reason was that the structure of sales in China was changing. We're one of the pioneers in the industry as we own our own brand. But owning a brand in 1991 was not all a good thing. Think about China's business environment in 1991. The country's economy was still a planned one in nature, and we could only choose state-owned shopping malls as a place to sell our products. After 1997, especially in the wake of the Asian Financial Crisis, a great change took place in domestic market: state-owned shopping malls started to disappear as private players began to play a bigger role. It was a market in flux. It was a big challenge for us, but not for our competitors who entered the market later than us. That transition was a test for us, even though we were the market leader at that time.
What was Peak's sales revenue then, in 1997?
Xu: About 100 million RMB, which wasn't bad for the late 1990s.
What was revenue in 2001?
Xu: Still 100 million RMB. Business was stagnant. There were a lot of problems. Our competitors like Anta, on the other hand, were growing very fast. My younger brother also joined Peak in 2001, half year before I did. He didn't finish university.
What changes did you and your brother bring to Peak as part of the generational handover?
Xu: First of all we implemented things, and the company improved its ability to execute plans after we joined. Ideas adopted by the board of directors were executed. That was a big change. Peak was not a company with a scarcity of good ideas. My father himself is both aspiring and entrepreneurial. He was adamant the force holding back the company was poor execution of plans. People were reluctant to change sales agents with whom they had worked with for years. They didn't want to offend these agents.
The first thing I did was to go into the market and learn from it. Then I started looking for new sales agents. I learned things during this time, and what I learned gave me the confidence to plough on with reforms. When I returned to the headquarters in 2004, the first thing I did was to reform the sales strategy. Half of our sales agents were gone within three years, though I faced great resistance, even from my father. There were definitely risks in making such changes, since no one can know for sure what they are doing is right. But I was certain that the old sales agents were not right for us, and they would have ruined our business if we didn't change. Fortunately my decision was vindicated.
How has financing been for the company? Why did you decide to raise capital?
Xu: Capital is especially important for private companies. We experienced three crises since we started the business. The first one happened in 1992, when all private enterprises faced the question of transforming themselves into collective companies or not. The second came after the Asian Financial Crisis, when most manufacturing companies started shifting to other businesses. Then there was last year's financial crisis.
Peak has faced capital issues since its establishment. When my father founded Peak in 1992, he asked a bank for a 1 million RMB loan. They asked him how he would use the money and he told them he needed it to pay for advertising. Can you imagine what the bank said?
How did the financial crisis hit Peak?
Xu: Two new manufacturing plants started operation in 2008, and we had been continuing to grow ourselves. Previously we had only two ways to raise capital: bank loans and private loans. But now there are several more, through private equity and bond issuance, for example.
Peak's shares fell on their debut, surprising a lot people. Why did they fall?
Xu: That was due to the market's overall performance. It had nothing to do with our business. We know our business well. When we publish our revenue report next quarter, the market will respond positively. It takes time for investors to get to know a newly listed company. I know that investors who target returns over the long term will add to their investment when the share price falls. They have confidence in Peak.
The price to earnings ratio of sportswear manufacturers in the mainland is about the Hong Kong's market average, or even lower in some cases. It shouldn't be that way, because, obviously, the mainland market still has a lot of room to grow, and our business is still in its infancy. That is why Sequoia Capital invested in us, even though they usually invest in fast-growing technology companies. And, apart from making shoes and clothes, Peak is also a company in China's fast growing sports industry. Some people have forgotten this.
Interview by Cheung Kong's Li Xiang. Translation by Zhang Liang.
Newsmaker: Xu Zhihua, CEO of Peak
Cheung Kong EMBA student Xu Zhihua is CEO of Peak, one of China's leading sportswear companies. Founded by his father, the company is an NBA sponsor and sometimes thought of as China's Nike. He spoke with Cheung Kong Magazine.
Peak most recently made the news in November with its announcement it had signed endorsement contracts with Houston Rockets forward Carl Landry and the Minnesota Timberwolves' Kevin Love. (Landry is filling the void left at the Rockets by the injury of Chinese NBA star Yao Ming.)
The first Chinese sportswear maker to show its commercials at NBA games courtside after signing with the Rockets in 2005, Peak now sponsors nine NBA players, including Rockets forward Shane Battier.
It is one of a number of Chinese shoemakers with operations in Jinjiang City, Fujian province, a hive of industrial activity famous for its high concentration of footwear and clothing manufacturers.
Peak went public in September, raising US$221 million with its listing on the Hong Kong bourse.
Cheung Kong recently caught up with Xu Zhihua to hear his story.
Why did you decide to join the family business?
Xu: Well, I received an offer from a large telecommunications company when I graduated. My major had been computer science, and I had been president of the student union. The salary they offered me was comparatively high, 100,000 RMB per year. But after discussion with my father, I realized that Peak needed me to understand the fast changing market. And I quickly made the decision to join Peak. Still, I don't think I joined the company because of my father's request; it was rather a sense of personal duty that pushed me to make the decision.
How long did it take you to learn the ropes and integrate yourself into the company after you joined?
Xu: Actually I'm still learning--and I keep learning everyday. I was an assistant to the CEO when I joined Peak, but to be frank I was in fact a sales person who coordinated with and visited many local sales agents. At that time, the company was adjusting its strategy.
How did Peak adjust strategies to respond to new challenges?
Xu: One key factor enabling us to adjust our strategy was Peak's brand recognition. From a consumers' perspective, Peak's branding doesn't change too much, even as the market we face changes. We have always been a sports shoemaker specializing in the manufacturer of basketball shoes. That is our foundation.
In 2001, I joined the company after graduating from university. When I visited our local sales agents, I found that they almost all loved playing basketball. They, too, were our consumers. They have a very thorough understanding of our brand. I thought that this was necessary for Peak to do well.
The company gained new blood when my younger brother and I joined. We changed sales agents, extended out products line, strengthened our designing capability, and improved our execution ability. All these changes helped Peak. And I think consistent branding is essential. Without it we would not have been able to succeed, no matter how capable the team is.
What was your understanding of the business when you joined?
Xu: My understanding came from the environment I lived and grew up: each summer I either worked in our franchised stores or in our factory. My father took my brother and me when he met with sales agents, even though we could not actually help him with anything. My roommates and I set up a shop at our dorm when I was at university with a total investment of 8,000 RMB, or 1,000 RMB each. Still, this did not give me a thorough understanding of the business, but I was getting to know some things.
Why did Peak lead in brand building but lag in coming to the market with an IPO?
Xu: Although our brand does have a long history – it was the first Jinjiang shoe manufacturer with its own brand name – our company is not that big. And business was sluggish for a while. We restructured, and then we realized the importance of the capital market. The company is now listed in Hong Kong.
You said business was sluggish for a while. When was that?
Xu: From 1997 to 2001. They were tough times. Competitors snuck up on us and competition intensified. So we decided to review our strategy. I am proud to say we could recover and expand our business again. Very few companies in China can make it. A person who falls not only has to pick themselves up, they have to run fast to catch up with the other runners.
What was the reason for those tough times?
Xu: The main reason was that the structure of sales in China was changing. We're one of the pioneers in the industry as we own our own brand. But owning a brand in 1991 was not all a good thing. Think about China's business environment in 1991. The country's economy was still a planned one in nature, and we could only choose state-owned shopping malls as a place to sell our products. After 1997, especially in the wake of the Asian Financial Crisis, a great change took place in domestic market: state-owned shopping malls started to disappear as private players began to play a bigger role. It was a market in flux. It was a big challenge for us, but not for our competitors who entered the market later than us. That transition was a test for us, even though we were the market leader at that time.
What was Peak's sales revenue then, in 1997?
Xu: About 100 million RMB, which wasn't bad for the late 1990s.
What was revenue in 2001?
Xu: Still 100 million RMB. Business was stagnant. There were a lot of problems. Our competitors like Anta, on the other hand, were growing very fast. My younger brother also joined Peak in 2001, half year before I did. He didn't finish university.
What changes did you and your brother bring to Peak as part of the generational handover?
Xu: First of all we implemented things, and the company improved its ability to execute plans after we joined. Ideas adopted by the board of directors were executed. That was a big change. Peak was not a company with a scarcity of good ideas. My father himself is both aspiring and entrepreneurial. He was adamant the force holding back the company was poor execution of plans. People were reluctant to change sales agents with whom they had worked with for years. They didn't want to offend these agents.
The first thing I did was to go into the market and learn from it. Then I started looking for new sales agents. I learned things during this time, and what I learned gave me the confidence to plough on with reforms. When I returned to the headquarters in 2004, the first thing I did was to reform the sales strategy. Half of our sales agents were gone within three years, though I faced great resistance, even from my father. There were definitely risks in making such changes, since no one can know for sure what they are doing is right. But I was certain that the old sales agents were not right for us, and they would have ruined our business if we didn't change. Fortunately my decision was vindicated.
How has financing been for the company? Why did you decide to raise capital?
Xu: Capital is especially important for private companies. We experienced three crises since we started the business. The first one happened in 1992, when all private enterprises faced the question of transforming themselves into collective companies or not. The second came after the Asian Financial Crisis, when most manufacturing companies started shifting to other businesses. Then there was last year's financial crisis.
Peak has faced capital issues since its establishment. When my father founded Peak in 1992, he asked a bank for a 1 million RMB loan. They asked him how he would use the money and he told them he needed it to pay for advertising. Can you imagine what the bank said?
How did the financial crisis hit Peak?
Xu: Two new manufacturing plants started operation in 2008, and we had been continuing to grow ourselves. Previously we had only two ways to raise capital: bank loans and private loans. But now there are several more, through private equity and bond issuance, for example.
Peak's shares fell on their debut, surprising a lot people. Why did they fall?
Xu: That was due to the market's overall performance. It had nothing to do with our business. We know our business well. When we publish our revenue report next quarter, the market will respond positively. It takes time for investors to get to know a newly listed company. I know that investors who target returns over the long term will add to their investment when the share price falls. They have confidence in Peak.
The price to earnings ratio of sportswear manufacturers in the mainland is about the Hong Kong's market average, or even lower in some cases. It shouldn't be that way, because, obviously, the mainland market still has a lot of room to grow, and our business is still in its infancy. That is why Sequoia Capital invested in us, even though they usually invest in fast-growing technology companies. And, apart from making shoes and clothes, Peak is also a company in China's fast growing sports industry. Some people have forgotten this.
Interview by Cheung Kong's Li Xiang. Translation by Zhang Liang.
Cheung Kong EMBA student Xu Zhihua is CEO of Peak, one of China's leading sportswear companies. Founded by his father, the company is an NBA sponsor and sometimes thought of as China's Nike. He spoke with Cheung Kong Magazine.
Peak most recently made the news in November with its announcement it had signed endorsement contracts with Houston Rockets forward Carl Landry and the Minnesota Timberwolves' Kevin Love. (Landry is filling the void left at the Rockets by the injury of Chinese NBA star Yao Ming.)
The first Chinese sportswear maker to show its commercials at NBA games courtside after signing with the Rockets in 2005, Peak now sponsors nine NBA players, including Rockets forward Shane Battier.
It is one of a number of Chinese shoemakers with operations in Jinjiang City, Fujian province, a hive of industrial activity famous for its high concentration of footwear and clothing manufacturers.
Peak went public in September, raising US$221 million with its listing on the Hong Kong bourse.
Cheung Kong recently caught up with Xu Zhihua to hear his story.
Why did you decide to join the family business?
Xu: Well, I received an offer from a large telecommunications company when I graduated. My major had been computer science, and I had been president of the student union. The salary they offered me was comparatively high, 100,000 RMB per year. But after discussion with my father, I realized that Peak needed me to understand the fast changing market. And I quickly made the decision to join Peak. Still, I don't think I joined the company because of my father's request; it was rather a sense of personal duty that pushed me to make the decision.
How long did it take you to learn the ropes and integrate yourself into the company after you joined?
Xu: Actually I'm still learning--and I keep learning everyday. I was an assistant to the CEO when I joined Peak, but to be frank I was in fact a sales person who coordinated with and visited many local sales agents. At that time, the company was adjusting its strategy.
How did Peak adjust strategies to respond to new challenges?
Xu: One key factor enabling us to adjust our strategy was Peak's brand recognition. From a consumers' perspective, Peak's branding doesn't change too much, even as the market we face changes. We have always been a sports shoemaker specializing in the manufacturer of basketball shoes. That is our foundation.
In 2001, I joined the company after graduating from university. When I visited our local sales agents, I found that they almost all loved playing basketball. They, too, were our consumers. They have a very thorough understanding of our brand. I thought that this was necessary for Peak to do well.
The company gained new blood when my younger brother and I joined. We changed sales agents, extended out products line, strengthened our designing capability, and improved our execution ability. All these changes helped Peak. And I think consistent branding is essential. Without it we would not have been able to succeed, no matter how capable the team is.
What was your understanding of the business when you joined?
Xu: My understanding came from the environment I lived and grew up: each summer I either worked in our franchised stores or in our factory. My father took my brother and me when he met with sales agents, even though we could not actually help him with anything. My roommates and I set up a shop at our dorm when I was at university with a total investment of 8,000 RMB, or 1,000 RMB each. Still, this did not give me a thorough understanding of the business, but I was getting to know some things.
Why did Peak lead in brand building but lag in coming to the market with an IPO?
Xu: Although our brand does have a long history – it was the first Jinjiang shoe manufacturer with its own brand name – our company is not that big. And business was sluggish for a while. We restructured, and then we realized the importance of the capital market. The company is now listed in Hong Kong.
You said business was sluggish for a while. When was that?
Xu: From 1997 to 2001. They were tough times. Competitors snuck up on us and competition intensified. So we decided to review our strategy. I am proud to say we could recover and expand our business again. Very few companies in China can make it. A person who falls not only has to pick themselves up, they have to run fast to catch up with the other runners.
What was the reason for those tough times?
Xu: The main reason was that the structure of sales in China was changing. We're one of the pioneers in the industry as we own our own brand. But owning a brand in 1991 was not all a good thing. Think about China's business environment in 1991. The country's economy was still a planned one in nature, and we could only choose state-owned shopping malls as a place to sell our products. After 1997, especially in the wake of the Asian Financial Crisis, a great change took place in domestic market: state-owned shopping malls started to disappear as private players began to play a bigger role. It was a market in flux. It was a big challenge for us, but not for our competitors who entered the market later than us. That transition was a test for us, even though we were the market leader at that time.
What was Peak's sales revenue then, in 1997?
Xu: About 100 million RMB, which wasn't bad for the late 1990s.
What was revenue in 2001?
Xu: Still 100 million RMB. Business was stagnant. There were a lot of problems. Our competitors like Anta, on the other hand, were growing very fast. My younger brother also joined Peak in 2001, half year before I did. He didn't finish university.
What changes did you and your brother bring to Peak as part of the generational handover?
Xu: First of all we implemented things, and the company improved its ability to execute plans after we joined. Ideas adopted by the board of directors were executed. That was a big change. Peak was not a company with a scarcity of good ideas. My father himself is both aspiring and entrepreneurial. He was adamant the force holding back the company was poor execution of plans. People were reluctant to change sales agents with whom they had worked with for years. They didn't want to offend these agents.
The first thing I did was to go into the market and learn from it. Then I started looking for new sales agents. I learned things during this time, and what I learned gave me the confidence to plough on with reforms. When I returned to the headquarters in 2004, the first thing I did was to reform the sales strategy. Half of our sales agents were gone within three years, though I faced great resistance, even from my father. There were definitely risks in making such changes, since no one can know for sure what they are doing is right. But I was certain that the old sales agents were not right for us, and they would have ruined our business if we didn't change. Fortunately my decision was vindicated.
How has financing been for the company? Why did you decide to raise capital?
Xu: Capital is especially important for private companies. We experienced three crises since we started the business. The first one happened in 1992, when all private enterprises faced the question of transforming themselves into collective companies or not. The second came after the Asian Financial Crisis, when most manufacturing companies started shifting to other businesses. Then there was last year's financial crisis.
Peak has faced capital issues since its establishment. When my father founded Peak in 1992, he asked a bank for a 1 million RMB loan. They asked him how he would use the money and he told them he needed it to pay for advertising. Can you imagine what the bank said?
How did the financial crisis hit Peak?
Xu: Two new manufacturing plants started operation in 2008, and we had been continuing to grow ourselves. Previously we had only two ways to raise capital: bank loans and private loans. But now there are several more, through private equity and bond issuance, for example.
Peak's shares fell on their debut, surprising a lot people. Why did they fall?
Xu: That was due to the market's overall performance. It had nothing to do with our business. We know our business well. When we publish our revenue report next quarter, the market will respond positively. It takes time for investors to get to know a newly listed company. I know that investors who target returns over the long term will add to their investment when the share price falls. They have confidence in Peak.
The price to earnings ratio of sportswear manufacturers in the mainland is about the Hong Kong's market average, or even lower in some cases. It shouldn't be that way, because, obviously, the mainland market still has a lot of room to grow, and our business is still in its infancy. That is why Sequoia Capital invested in us, even though they usually invest in fast-growing technology companies. And, apart from making shoes and clothes, Peak is also a company in China's fast growing sports industry. Some people have forgotten this.
Interview by Cheung Kong's Li Xiang. Translation by Zhang Liang.
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